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.

Follow me via Twitter

How To Stay Out Of Debt

I was sifting through some old paperwork today, and I stumbled across an old letter from our bank.  It was dated September 8, 2005.  I was pleased to see that it was a notice from our bank, informing us that our car loan had been paid-in-full.  I smiled as I put the letter back in its place and then I went searching through the No Credit Needed Archives – for a quick trip down memory lane.

On August 29, 2005, I sent the final payment to our bank and paid off our car loan.  It’s hard to believe, but it’s been four years since we’ve had a car payment.  And to think, I used to be one of those folks who assumed that I would “always have a car payment.”

Instead of making car payments, I now make payments to myself.  Each month, I put an amount equal to a car payment in our savings account.  When and if we need to buy a newer car, we’ll do so out of our savings.  Instead of going in to debt, and paying interest, we are able to remain debt free, and earn interest as we save.

A couple of years ago, we used this technique and purchased a new-to-us automobile, with cash.  While it hurt to write a single check for such a substantial amount, it felt good to feel “in charge” of the car-buying experience.  I didn’t have to worry about payments or interest rates.  Instead, I was able to focus on price.  As a cash buyer, I didn’t have to worry about being approved for a loan.  I was able to find the car I wanted, negotiate from a position of strength, and rest assured, knowing that I had enough money to complete the deal.

Right now, I’m saving up to replace my old truck and my eight year old Honda.  As I work toward these goals, I’m in no hurry.  In fact, a mechanic buddy has my truck, right now, and is giving it a good tune up.  Since I only use it to carry off the trash and do work around the yard, it might be another decade before it needs to be replaced.  I keep the Honda serviced, and I’m hoping it will last me several more years, as well.

It is impossible to explain how good it feels to live without automobile payments.  Sure, our cars are a little older and we have to be proactive in our planning, but all of our efforts are so worth it.

For those interested, you can click here to read about our debt reduction journey.

Follow me via Twitter

Four Years Without A Car Payment

I have some awesome news that I want to share with you  guys.

My parents are debt free!

I just got off the phone with my Dad, and he was so excited.  For more than two years, my Dad has been focused on paying off his mortgage.  Month after month, he made his regular payments, and then used every, extra available dollar to reduce his principal.  Today, he was able to walk into his credit union, hand them a check, and pay off his mortgage!

I cannot explain to you how happy I am for my Mom and my Dad.  I asked Dad for permission to write a bit about their story, and he was happy to share with you guys.  Basically, after reading some of the articles here at No Credit Needed, Dad decided to get out of debt and pay off his mortgage.  After just a few months, he was able to rid himself of his consumer debt, and then he began to focus on ridding himself of a mortgage payment.  Through hard work, sacrifice, and determination, he paid off a 15 year note in less than 7 years, with the majority of the payments coming in the past 2 years!  How cool is that?!?

I love it when I hear about people who are debt free, even people that I don’t know.  Can you imagine how cool it is for me to hear that my parents are debt free?  I’m very close to my Mom and my Dad and I can’t wait to see what their debt free future holds for them.

For those thinking about debt reduction, consider reading – Debt Reduction 101 – and begin your journey towards being debt free.

Mom and Dad – you rock!

Follow me via Twitter

Great News – My Parents Are Debt Free!

I have been debt free for (almost) three years.  The following is inspired by a conversation that I had recently with a good friend – a buddy of mine who has decided that now is the time to do something about his debt.  I’m very proud of him, and I hope this post inspires him – and you!

1.  I now live in the present, and not in the past.

2.  I no longer worry about late fees, interest rate changes, interest payments, lost payments or finance charges.

3.  I have peace of mind.  If something were to happen to me, my wife would not have to worry about our finances.

4.  I earn interest.  I don’t pay interest.  This feels awesome.

5.  I am now acutely aware of the value of a dollar.  In the past, if I could make payments, I could afford it.  Now, if I can’t pay for it, I can’t afford it.  This basic shift in thought has radically changed my life.

6.  I no longer dread going to the mailbox.

7.  I can afford to fund retirement accounts.

8.  I can afford to fund education savings accounts.

9.  I am free from the emotional baggage associated with debt.  It’s impossible to adequately describe how good it feels to be debt free.  Suffice to say, if I had known how awesome being debt free feels, I would have gotten out of debt a decade ago!

10.  I can, hopefully, inspire and encourage others.

11.  I am setting a much better example for my kids.

12.  I am able to give more time and more money to those who are in need.  There are only three things one can do with money – give, save, and spend.  It feels good to save.  It feels good to spend.  It feels great to give.

13.  I now know that I can establish a goal, push through difficult times, and change my life.  These truths are helping me as I now focus on my health – losing weight and becoming a runner.  I might has been replaced by I will.

14.  I now make big plans.  I have learned to dream of a better and brighter future for myself and my family.

15.  I spend a little extra on nicer things for my wife.  In the past, credit card debt crippled me.  Now, with a proper budget and some forward thinking, I can actually plan for nicer things.

16.  I can disregard every credit card application that comes my way.

17.  I have found solid financial footing.  With my debts eliminated and an emergency fund in place, I feel much more secure than I did three years ago.  None of us knows what the future holds, but I feel much better now than I did then.  Much better.

18.  I can listen to my man Dave Ramsey and smile knowingly when callers scream “We’re Debt Free!”.

19.  I have a deep respect for those who have paid off much more than I paid off – and for those who are still in the midst of their debt reduction journeys.  I am amazed by some of the debt reduction stories that I have read over the past four years.

20.  I can write this post.  When I started No Credit Needed, I had one goal.  I wanted to be debt free.  It took 10 months, but I managed to pay off my last debt in February of 2006.  Since then, I’ve done my best to be honest, open, and forthright about my struggle and my successes.  I hope that this site blesses you as much as it has blessed me.

If you are ready to get out of debt – and start your own journey towards being debt free – may I suggest the following resources?

No Credit Needed Debt Reduction Guide

No Credit Needed Debt Reduction Free eBook

Debt Reduction 101

Follow me via Twitter

20 Things That Rock About Being Debt Free

10.  When you start your journey, you will be pumped!  You will read books, listen to radio programs, subscribe to debt reduction blogs (hint, hint), and fill your mind with debt reduction strategies.  After years of ignoring your debt, you will have had enough.  With enthusiasm, you will create your own debt reduction plan.  You will be ready.

9.  As you move forward, you will learn to sacrifice.  By giving up wants and focusing on needs you will be amazed by how just how much wasteful spending you had been doing.  This will bum you out, just a bit, but you’ll be thrilled to see how much extra money you have.  In these early days, you will put every single extra penny towards debt reduction.  You will be on fire.

8.  After a few months, you will really get the hang of it.  Budgeting will become second nature, and you’ll really think about how you are spending your money.  Instead of fighting with your spouse, you’ll learn to talk.  As your balances shrink (much too slowly, you will think), you will begin to dream of life after debt.

7.  Just as things are moving along nicely, you will have to deal with an unexpected emergency.  Your baby will get sick.  Your hours will get cut.  Your washing machine will die.  Something will happen.  That’s why you need your emergency fund.

6.  After the emergency has passed, you will struggle to find motivation.  The enthusiasm with which you started out will no longer be there.  Your goal date, which seemed so possible, will seem like fantasy, now that you’ve spent time (and money) dealing with the emergency.  You will think about quitting.

5.  Following some good self-talk, you will decide to press on with your debt reduction.  Instead of wallowing in self-pity, you will remember why you started this in the first place.  You wanted to be free.  You wanted to save for retirement.  You wanted to be a good example for your kids.  You will plant a flag in the ground – and you will get back on track.

4.  As you begin to rid yourself of your debts, you will find new ways to create income and save money.  You will work harder than you have ever worked before and you will focus all of your energy on one, consuming goal.  You will begin to hate your debts, in a way that you never thought possible.  You will rock.

3.  Near the end of your journey, you will see the finish line.  Six months, five months, four months, three months… No matter where you are or what you are doing, you will be counting down the months, weeks, days, and even hours until you will be debt free.

2.  After you make your final payment, you will rejoice.  You will scream.  You will shout.  You will run around your house, jumping up and down, like a child on Christmas morning.  You will be free, free, free.

1.  Upon thinking about your journey, you will be thankful.  You will be thankful for the lessons you learned.  You will be proud, of yourself and your family, for the hard work and the sacrifice.  You will have done something that very few people are willing to do.  You will feel awesome.

Need a little help getting started?  Check out my free Debt Reduction Guide (And E-Book)

Follow me via Twitter

10 Things That Will Happen On The Road Between Being In Debt And Being Debt Free

Finally, YOU DID IT!

You worked hard, you sacrificed, you made extra payments, and now, you are, officially, 100%, DEBT FREE!

Excited, you do a little dance, complete with running-man style knee lifts and a little old school moon-walking.

Life is good.  No.  Life is GREAT!

For the next few weeks, you feel like a King.  Who’s the man?  You’re the man!  Who’s debt free?  You’re debt free!  Who rocks?  You rock?

Then…

You realize that you have a NEW goal – an even BIGGER goal.

You want to remain debt free.

On February 26, 2006, I made my final debt reduction payment.  I was, for the first time in my adult life, free from the burden of debt.

Debt free, I celebrated with my friends, my family and my blog readers.  Life was good.  No.  Life was great!

A few weeks later, after the euphoria subsided (it never quite goes away…), I realized the need to develop some strategies that would help me remain debt free.

Developing Strategies To Remain Debt Free

Strategy 1 – Finding The Balance Between Investing For The Future and Saving For The Present

If you want to remain debt free, you need cash.  But, if you want to plan for your retirement, you need contributions.  I have worked hard to find the right balance between investing (for retirement and kids’ college) and saving (for future purchases like newer cars, new furniture, and other major items).  Income is limited, and must be allocated wisely.

At every turn, there are decisions to make.  If I contribute to my 403(b) (a pre-tax retirement account), my income taxes are reduced.  But, I won’t have access to that money (without penalties) until I’m ready to retire.  If I put more money into my savings account, I’ll have easy access, but I’ll pay income tax (and tax on any earned interest).

If I maximize my Roth IRA (an after-tax retirement account) contributions, I’ll be setting the groundwork for a great retirement.  But, there are some restrictions associated with accessing the money in my Roth, should I need it.  Conversely, if I keep the money in a checking account, and don’t make my Roth contributions, I lose a year’s worth of retirement funding.

I created a life priorities list, to help me decide which accounts get funded first, second, third, and so forth.

1.  I want minimize my taxes.

2.  I want a nice retirement.

3.  I want to pay cash for major purchases.

4.  I want a really nice retirement.

5.  I want to help my kids pay for college.

6.  I want to pay cash for a home.

Using this priorities list, I’ve then created my prioritized funding list.

1.  Each year, I will fully-fund my 403(b) (and other pre-tax retirement plans).

2.  I will maintain (or build) and emergency fund (in my savings account) equal to 12 months worth of household expenses.

3.  I will save – in my savings account – for future car, furniture, and appliance purchases.

4.  I will fully-fund my Roth IRA.

5.  I will fully-fund Education Savings Accounts for each of my kids.

6.  I will save – in my savings account – for a future home purchase.

As you can see, I’ve tried to find balance between the future and the present.  There are some expenses, like newer automobiles or newer appliances, that are inevitable, even if I don’t know precisely when they will be incurred.  As a person living debt free, I need to plan for those expenses now, instead of waiting to worry about them when the engine blows or the dryer dies.  But, if I focus too much on the ‘what ifs’ associated with current needs, I’ll fail to adequately fund my retirement accounts.

Finding balance can be difficult.  It requires asking, and answering, some challenging questions.

Am I willing to be as intense about saving money as I was about reducing my debt?

Am I willing to give up some retirement contribution opportunities, so that I can maintain adequate (as defined by me) cash reserves?

Am I willing to pay higher taxes, this year, so that I can have access to my money?

What percentage of my money should be dedicated to savings?

What percentage should be dedicated to investing?

Over the next few weeks, I’ll explore these questions, and many more.  I hope you’ll stay tuned, and I really value your feedback.  (When leaving a comment, please be patient.  For some reason, comments take a few minutes to show up.  It’s a problem I’m aware of, and I’m working to correct it.)

If you are interested in keeping up with this series, consider subscribing to No Credit Needed.  This series is very important to me and I’ll be taking the time to adequately prepare for and develop each post.

Side note:  For those looking forward to the next installment in the Bills-In-A-Box series, stay tuned.  It will be up Thursday!  (Hint: I have a new video camera.)

One final note:  For the purpose of this series, debt free means debt free including OR excluding a first-mortgage.  I live in a house provided by my employer as part of my compensation.  So, I’m saving for a future home purchase.  Should I need to move, I would face another decision – to rent or to buy (with a mortgage).  At some point in the future, I’ll write a bit more about this topic.  Suffice to say, buying a home with cash is a big time goal – and one for which I’m shooting!

Follow me via Twitter

Developing Strategies To Remain Debt Free – Strategy 1 In The Series

1.  It just feels good to be debt free.  I’ve been debt free for more than than two years.  I cannot express, in words, how awesome it feels to live without payments.

2.  Every dollar that I bring home belongs to me.  I can choose to spend my money, save my money, give my money, invest my money, or waste my money.  Those choices are my choices to make.

3.  My kids will grow up in a home that is credit-related stress-free.  This should be a huge motivator for all parents.  Imagine if your kids NEVER had to hear you and your spouse argue about money.

4.  EVERY conversation that I have with my wife about money is POSITIVE, ENCOURAGING, and UPLIFTING.  Instead of talking about how we are going to pay for the mistakes in our past, we talk about our plans for an awesome future.  ALL of the stress is gone.

5.  I never have to worry about late payment fees, interest rate hikes, minimum monthly payments, or annual credit card costs.  Never.

6.  If the market goes up, I’m cool  If the market goes down, I’m coo.  I have time on my side.  Living without payments allows me to take a long-term view of the market.  In other words, I don’t have to hit it big in hopes of bailing myself out of past mistakes.

7.  I can fully-fund my retirement accounts, my wife’s retirement accounts, several education savings accounts, and still save for future major purchases.

8.  When I choose to conserve and save money, I do so for a particular purpose.  Instead of saving and scrimping because I owe some creditor, I can save and scrimp because I want to buy something cool or go somewhere fun.  My sacrifices benefit me, not some credit card company executive.

9.  I can give to worthy people and worthy causes.  It’s SO much fun to be able to help others – and not worry about missing a payment or slowing my debt reduction.

10.  I sleep soundly.  If something were to happen to me, my wife and kids would be just fine.  Instead of worrying about how to deal with a mountain of debt, they could care for each other.  As a father, it feels good to be able to provide my family with this added measure of security.

When I started this blog, my primary goal was to get of of debt.  It was only after achieving my goal that I realized all of its benefits.  I strongly encourage you to get serious about your debt reduction.  Why?  Because, being debt free rocks!

For more on this topic, consider reading Get Ready For Some Serious Debt Reduction.

Follow me via Twitter

Ten Things That Rock About Being Debt Free

Our youngest daughter is in the hospital.  She’s been there, with my wife, since Sunday morning.  She has a stomach virus and the doctors are waiting for her body to regain its strength before they dismiss her.  Hopefully, she’ll be able to coming home soon.

Driving back-and-forth between the hospital, I’ve had a lot of time to think.  (I’m watching the other kids while Mommy spends the night with baby girl.)  Three years ago, we went through a similar experience with my son.  But, unlike baby girl, who is only three months old, he was fourteen months old.

When our son got sick, No Credit Needed was a relatively new site, and we had just begun to pay off our debts.  Now, three years later, we are debt free and we are in substantially better financial shape.

Of course, no matter our financial situation, I’m still worried about our little girl.  But, because we live on a budget, maintain an emergency fund, and have health insurance, I’m able to focus my attention and help my wife, care for my kids, and love on the baby.  Instead of wringing our hands, thinking about how we are going to pay for gasoline to drive back and forth, medicine for when the baby gets home, babysitters to watch the kids, or our portion of the hospital bills, we can actually think about what’s really important – helping baby girl get better.

Money may not be able to buy happiness, but it can provide peace of mind.  If you are thinking about getting out of debt, I hope that this article will serve as a little added motivation.  I cannot tell you how good it feels to be debt free – but I’ll try!  It feels awesome.  I feel in control.  I feel empowered.  Instead of worrying about creditors and payments, I can focus on the future!

I strongly encourage you to get out of debt and live on a budget.  If you need a little help getting started, may I suggest the following -

33 Days And 33 Ways To Save Money And Reduce Debt

Free Online Debt Reduction Guide And Free Debt Reduction eBook

For those who are new to the site, you might be interested in my debt reduction journey.  Click here and you can read follow milestone posts, from the first post to the day I declared my freedom -

How I Got Out Of Debt: Follow The Posts

Follow me via Twitter

Yet Another Motivation For Keeping My Financial House In Order

My wife is an educator, so she’ll be headed back to the classroom in a few weeks.  We have been so busy this summer – and our financial records reflect a slight lack of discipline.  We haven’t overspent, but we haven’t saved us much as I would have liked, either.  But, frankly, with all that we’ve had going on, I’m amazed that we’ve done as well as we have.

Now that summer is drawing to a close, we’ll have a chance to resume our normal schedule.  I don’t know about you, but the recent spike in gasoline prices have made staying on budget more challenging than ever.  Our gasoline category keeps increasing, month after month.  And, using my grocery store price book, I’ve noticed that food prices have gone up, rather dramatically, over the last year.  Our entertainment category keeps shrinking and is almost down to the levels we had it at when we were aggressively paying off debt.

Changing the subject, those of you visiting the site will notice (yet another) site redesign.  I won’t go into the details of the changes, but I will say – I missed the RED!  Hopefully, you’ll dig the new look and feel.  I know I like it much more than the laid back green-and-brown.

I’m headed to the bank.  I’ve been so busy the past two weeks, I haven’t had a chance to deposit my paycheck.  It feels weird, even after years of living on a budget, to be free of the paycheck-to-paycheck cycle.  I can remember the days of rushing to the back, worried that a check would bounce, knowing that every dollar I was about to deposit had already been spent.  Man, I wouldn’t go back to those days for all the credit card reward points in the world. 

Follow me via Twitter

New Site Design And Getting Ready For School To Start

As I mentioned in my recent post about what to do after getting out of debt, I like the idea of having an emergency fund.  After  a series of super-secret mathematical calculations – I pulled a number from a hat – and decided that $16,000 would be a good amount to have in ours.

Where do I keep our emergency fund?

Online Savings Account – $14,000

Online Interest Bearing Checking Account – $1,500

Cash In My Pocket – $500

(Currently, our online savings account is with ING DIRECT.  Open your account online today. No fees and no minimums!)

I like the idea of having some cash on me, at all times.  I also like to keep some money in a checking account, readily accessible for unexpected expenses.  The bulk of the money, in my online savings account, is for major, unforeseen life-events.  Should I need to withdraw the money, a transfer takes about two days.

(As a side note – I also have just about $2,000 in a brokerage account, invested in an index fund.  The money has been sitting in the account for more than two years and I never really do anything with it.  Eventually, after I fully-fund my ‘emergency fund’ and all retirement accounts, I’ll turn my attention to this brokerage account.  For now, I don’t include this amount in any of my calculations – and I consider it my super-secret, things-have-fallen-apart, emergency stash.)

Observant readers will remember that I’m not afraid to dip into my emergency fund.  In fact, if you are going to live ‘no credit needed’ (without borrowing money), then you’ll need an above-average cash reserve.  And, when it’s time to buy big-ticket items, you’ll have to use the money that you have ‘on hand’.

Last year, the transmission in our van almost died – and the cost to replace it would have been more than the entire value of the van, itself.  So, we traded the van and purchased a newer one, with cash from our ‘emergency fund’.  I also dipped into my emergency fund so that I could fully-fund a Roth IRA for my wife (before the April 15th deadline).

Sticklers, no doubt, will question whether or not these ‘dips’ in the ‘emergency fund’ were, in fact,  emergencies.  I’ve debated these moves myself.  But, instead of debating ’shoulda/coulda’ – I’m simply working hard to rebuild the fund.

By the way, you can click here to see how I’m doing as I rebuild my ‘emergency fund’ (non-retirement savings) – and here to see a chart of my progress, over at my other site, the No Credit Needed Network.

I would be interested to hear whether or not you have / want an ‘emergency fund’.  How much are you planing to save?  Is it invested in mutual funds / stocks or is it just sitting in an online account?

Follow me via Twitter

Building An Emergency Fund – Where Do I Keep It?