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.
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