How To Stay Out Of Debt

1.  Live on a budget and plan for future purchases.

  • If you are going to live without borrowing money, you will need to save for future purchases.  Saving for automobiles, furniture, and appliances requires a lot of discipline and a lot of planning.  The debt free life is awesome, but it does require that you spend some time mapping out your financial future.  We use the You Need A Budget software to manage our finances and I’m proud to have them as a long-time sponsor of this site.

2.  Maintain adequate cash reserves.

  • Rainy day fund, emergency fund, freedom account – It goes by many names, but no matter what you call it, you’ll be glad you have it when life throws you a financial-curve ball.  How much you’ll want to keep in savings will be determined by your particular situation.  I keep enough money in my emergency fund to replace my income for six months.

3.  Avoid lifestyle inflation.

  • Take this from someone who knows what he’s talking about – Once you get out of debt, you are going to feel very, very rich.  You won’t be, but you’ll feel like it.  For the first month or so, you’ll pay your bills, see just how much you still have in your checking account, and a big smile will come across you face.  Enjoy it, because getting out of debt does, indeed, rock!  Then, take a second – and realize that if you go crazy and spend all of that freed up cash, you’ll quickly find yourself right back in debt.  Continue to follow your budget and live below your means.

4.  Plan for your financial future.

  • Retirement.  College.  Yep.  Now is a great time to really focus on saving for retirement and paying for kids’ college.  This is not to say that we should wait until we are debt free to save for either, but being debt free does allow us to really amp up our contributions.  Do some research and analyze your various options.  Do you have a 401(k) through work?  Do you have a Roth IRA?  Have you considered an ESA or a 529 Plan?  Take the time, educate yourself, and prepare for tomorrow.

5.  Be smart with your credit cards.

  • If you use them – use them wisely.  Pay your balance off each month and avoid carrying balances.  Rock on.

This week I will be writing a series of Back to the Basics articles.  I encourage you to subscribe to No Credit Needed via RSS or Email.  Also, if you liked this article, please consider promoting it via the social network buttons below.  Comments are always appreciated – and don’t forget to follow me over at Twitter.com/NCN.


NCN

http://www.ncnblog.com

No Credit Needed is a personal finance blog about debt reduction, saving money, and simple living. Thank you for visiting the site and please consider subscribing to No Credit Needed by Email. Have a blessed day!

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4 thoughts on “How To Stay Out Of Debt
  1. Eric J. Nisall

    I’d also suggest creating “event funds” as a way to plan for certain things such as a large purchase, holiday gifts, or vacation. What this accomplishes is simply a way to segregate funds that will go toward these specific events, and acts as a guide insofar as how much is available to spend for each purchase. It acts as kind of simplified budgeting tool so as not to take on debt and enabling people to pay off the each purchase completely.

     
  2. Matt Bell

    Great article. I also like the idea of tracking your use of credit cards as you use them. It’s easy to do with online budget tools like Mint.com. If you’re not using an electronic tool to download and categorize your credit card spending, you can record the spending in an excel spreadsheet or a paper & pencil budget. Otherwise, it’s way too easy to overspend with credit cards.

     
  3. John Hunter

    Good advice. Not buying what you can’t pay for is a good start but it isn’t enough. Your second point of saving an emergency fund is necessary unless you are extremely lucky and never have an emergency.

    If you don’t have the money to pay for something you want, just wait to buy it until you do. For way over 95% of desired purchases this is the best advice.