TIPS FOR A DEBT FREE LIFE

WHY IS BEING DEBT-FREE SO IMPORTANT TO A FRUGAL LIFE?

Frugality is all about being intentional with your money.  It’s making sure that you put every dollar towards the things that are most important to you. By allocating part of your budget each month to making debt payments, you have less to put towards your priorities.

So, make sure that you are spending time thinking about what your priorities are and why you want to be able to have more resources to devote to them. It doesn’t mean that your priorities have to things you want to spend money on. Time could be your priority.  Maybe you just want more time with family and friends, or more time to travel. By getting out of debt, you will not need to earn as much, which can allow you the freedom to spend more time doing what you want to do.

For many of us, the first step to living a frugal lifestyle is getting out of debt.  This is often student loans, car loans, and credit card debt.

DEBT DOES NOT HAVE TO BE A WAY OF LIFE

So many of us grew up hearing the message that debt is just a part of life. Instead of doing everything we can to avoid debt, we might consider it unavoidable which can make us much more willing to take it on. If you truly believe that you will always have debt, there is not much motivation to do things to avoid it.

So, today I wanted to go over some things to think about if you are determined to avoid debt. I have other posts with tips on getting out of debt. In this post, I will focus on avoiding new debt and providing you with some tips for a debt-free life.

AVOIDING DEBT

There are situations that come up where we feel like there are no other alternatives than to go into debt. Sometimes this may truly be the case. If a true emergency comes up we may be left with no other choice but to go into debt. This often occurs with medical emergencies. However, sometimes there are alternatives that we might not have even considered. You can often be more creating when you have decided that you will use debt only as a last resort.

It’s really important to consider alternatives when something needs to be repaired or replaced. Be honest with yourself about how much of an emergency the situation really is. Can you live without it for a while to give yourself time to save up to cover the cost of whatever unexpected expense might be? Say your dishwasher breaks and you have no cash to repair or replace it. You actually can wash dishes by hand until you save up! If you are not opposed to debt, you might not even consider that option.  You could likely just run out and opt for the payment plan at the local home improvement store.

You will be surprised at how many times there really are alternative resolutions for situations that don’t involve going into debt. Many of us are raised in a way that if something in our home breaks, we fix it.  This is the case whether we have the money for the repair or not. Unless it’s something of an urgent nature, such as a roof repair, consider if you can do without until you can save up the cash. Changing your mindset about using debt is really important to stay out of debt long term!

EMERGENCY FUND

I think that the next most important thing (after really changing your mindset about debt) is to build your emergency fund. I have a separate podcast episode or maybe two reviewing how to calculate how much you need in your emergency fund. Generally, it’s 3 to 6 months of expenses.

Even if you are determined to stay out of debt, emergencies are going to come up. Having an emergency fund allows you to address most situations without having to use debt or having to wait an extended period of time to address a situation. If you don’t yet have an emergency fund or do not yet have a fully-funded emergency fund you really want to make this a priority.

There is some debate on how much to put in your emergency fund until you have your debt paid off. I tend to lean on the higher end when deciding what your starter emergency fund will be.  I think it’s more important to not add any new debt while you are paying off debt. If your emergency fund is too small you might take on new debt while paying off your existing debt when a situation comes up.

SET A BUDGET AND STICK TO IT

Not sure if we could talk about tips for a debt-free life without talking about budgets! In order to stay out of debt, it’s really important to know what money you have coming in and going out. If your budget shows that you are spending more than you have coming in, you will never be able to stay out of debt. If your income is matching your expenses, that will become an issue too.  You could be tempted to use debt If anything unexpected comes up. It’s important to have room in your budget to include money to be put into savings.

Sometimes you will find people who interpret the fact that you live on a budget as a bad thing. Some people might think that being on a budget is restricting yourself, and others think it means you are struggling financially. This could not be further from the truth! Don’t let those people discourage you from sticking to your budget.

By living on a budget, you are taking a proactive approach to manage your money, which is so important to stay out of debt. When you have times that you come in under budget, try to put at least some of the excess into savings. Either saving for something in particular, or just extra savings for just in case.

Sometimes when we find some extra cash in our budgets we can be tempted to spend it on things we weren’t planning to spend money on. Maybe try to keep some aside for extra money for fun, and put the rest aside for savings. The more often you can be intentional with any extra dollars you find, the less likely you will need to use debt.

MAKE SURE TO INCLUDE SINKING FUNDS AS PART OF YOUR BUDGETING PROCESS

I do have a separate podcast episode going into more detail on setting up sinking funds. Sinking funds are little buckets of money to save for specific things that occur at irregular times throughout the year. You may have a sinking fund for an annual homeowners insurance payment, an annual vet visit for your pets, car repairs, etc. Think through the year and try to identify all of these types of expenses. Then you can decide how much you should put away each week to cover when these expenses come up. Sinking funds have been one of my top tips for a debt-free life that I have learned.

If you do not figure in amounts for these sinking funds into your weekly budget, when these costs come up they can really blow your budget.  It’s the worst when you are tracking along to your budget, and then all of a sudden you realize you didn’t remember that your pets would need an annual check-up and shots for several hundred dollars or more. This type of expense could end up on a credit card if there were not funds set aside for it.

ALWAYS BE THINKING ABOUT CONTINGENCY PLANS

Look at your budget and decide what would happen if you had a financial emergency.  Say, for example, you were out of work for a month. Decide what would get cut from the budget in an emergency situation. Cut all dining out, entertainment, travel, etc.  Really think of anything you could possibly do to reduce your expenses.

This is only for an emergency situation. Having a plan in place is important to help keep you out of debt. It also reduces stress by knowing that you have a plan if something were to happen.

Thanks so much for checking in! If you would like to hear the podcast version of this topic to check out Lola’s Frugal Life Podcast! Also, be sure to check out my other blog posts on this site!