How I Live Without Borrowing Money

As the credit crunch continues, more and more people are learning to adjust to life without credit.  It’s been four years since I borrowed money or used a credit card.  Here’s how I live without borrowing money.

Budget –

I live on a budget.  My wife and I receive monthly paychecks and I receive irregular income from various sources.  I use the Quicken Deluxe Software create my budget and track spending.  As I create my monthly budget, I’m able to think about the coming month’s expenses, and plan accordingly.

Many people, when dealing with personal finances, feel anxious and frustrated.  Budgeting can help with these feelings, because a realistic budget helps to remove some of the what ifs and replaces them with actual realities.

Learning to live on a budget can take time.  Be patient.  It took me almost six months to get things right.  Eventually, creating a budget will become second nature and you’ll actually look forward to sitting down with your bills and hammering out your monthly plan.  Seriously.  Trust me!

Plan –

Sure, my budget helps me get through the month, but I also create short-term and long-term plans.  Remember, you’re learning to pay CASH for every thing.  That new washing machine?  You are going to pay cash.  That newer automobile?  You are going to pay cash.  College for the kids?  Yep, you are going to pay cash.  So, you need to plan, plan, plan.  (Note, when I use the term cash, I mean that you are going to pay for these things, up front, instead of borrowing money and paying for them later.  The actual method of payment might be cash, debit card, online bill pay, or check.)

I have several short-term plans (and goals).  Currently, we are saving to buy new furniture, a newer automobile, and new appliances.  But, I also have long-term plans (and goals), including buying a house for cash and paying for our three kids to go to college.  So, even though we are debt free, and could spend our money foolishly, our plans keep us honest and frugal.  In fact, we have less spending money, now, than we did when we were in debt, because so much of our savings are allocated to future purchases.  (Of course, the cool thing is, even though this money is allocated, on paper, for specific future purchases, we could, in the event of a real emergency or opportunity, use this money for anything we wanted.  That’s what’s great about having money in savings.  It’s ours, and we can use it as we wish.)

Sacrifice –

There are no shortcuts.  If you want to have enough money in the future, you have to sacrifice today.  If I bought every gizmo and gadget that I wanted (and could, at this point, afford), I would never achieve my long term goals.  Right now, we live in a house that is provided as part of my compensation.  We really want to buy our own home.  But, our real goal is to pay cash.  So, we make a house payment, to ourselves, each month.  Even though I could buy name brands, I still buy generic, because getting out of debt was just the first step of a very, very long journey.

Focus –

It’s never easy to go against the grain.  When everyone else is buying new cars and upgrading to the latest and greatest, it takes a certain inner strength to be content with what you already have.  As recent events have shown, however, most Americans (and most politicians) would do well to learn a little fiscal restraint.  So, the next time everyone in the office goes out for lunch, proudly produce your brown bag.  When the newest cell phone hits the market, be content with the one in your purse that still works just fine.  If you can’t afford your lifestyle, make the changes necessary to bring your expenses into line with your income.

Side Note:  I’ve been living without borrowing money for four years.  I’ve also avoided using credit cards.  If you choose to use credit cards, and many do, just remember to pay them off at the end of the month, so as to avoid those pesky interest payments.  As credit card companies look for more ways to make money, in tight times, I’m sure that they’ll get more and more aggressive with their fees and charges.  If you must use them, be careful!

If this article inspired or informed, please Stumble It and pass the word.  Thank you.

I’ve written about this subject before, and you might be interested in some of those articles.

Click to read –

How I Live Without Credit Cards

Life Without Credit Cards And The No Credit Needed Experiment

Edit:  I just reread this post, and I think I want to write a little more about combining the budget with short and long-term plans.  I’ll write about that in my next post.

26 thoughts on “How I Live Without Borrowing Money

  1. You continue to be a great example of the new leaders of the no debt movement! I am coming up on three years and I haven’t looked back. I still need to get rid of the mortgage though, and we are planning on moving out of our 900sqf condo to a home soon, so it will take a little longer.

  2. I’m glad you included something about sacrifice. A coworker recently commented that it “must be nice” that my wife is a full-time mom. I pointed out that we were working towards debt freedom, living in a smaller home, and that I drove a 18 year-old van to work. Some people automatically assume that things come easy, but they don’t. For the most part, things worth doing require some level of sacrifice.

  3. Thanks for this post!

    I don’t remember the last time I had a balance on a credit card!

    I use CC’s to buy EVERYTHING, but I pay them off every month in full. I use them to get 1% cash back on my anniversary date. If I were to carry the balance, I would be losing that 1% I earned during the month becuase it would get swallowed by the 18%/12 finance charge.

    This takes IMMENSE discipline. Don’t even think of using this method unless you are in complete control of your spending.

    I am putting EVERYTHING on the CC’s, but my EVERYTHING has been whittled down to base expenses.

    This can be done responsibly.

  4. Interesting. I’ve never carried a balance on a credit card. I only use it to build credit. Of course if I never borrow, what do I need credit for? I’d rather be the lender since the old proverb goes “the borrower is servant to the lender”.

  5. To give something up is easy, to be disciplined and use it responsibly is hard. I love credit cards. In the past 5 years I have probably recieved $3000; round trip from Boston to Poland; Boston to Calgary; Boston to Pellston. All free. Plus I get added bonuses such as buyer protection, fraud protection, insurance on rental cars, etc. I guess if one cannot control ones actions, then cold turkey is that answer but it is not the best one.

  6. what a great inspiration you are! i’ve started buckling down and living more frugally just since July. i lost my job in march ($34000 annual) and i just recently got hired into a part time (2-3 days a week) minimum wage ($7.40 in Michigan) job. you can imagine the stress and changes that come with losing that amount of income. thankfully my husband has a great job and we haven’t gone under yet, but it’s bloggers like you that keep me going and inspire me to do better each month when i sit down to figure out our budget.

    thank you!

  7. I really enjoyed this post. My husband and I also live debt free, not including the mortgages on our two homes. When people find out we own a vacation home we are often barraged by ‘it must be nice’ commentary. I constantly find myself explaining how we sacrifice by driving old cars, clipping coupons, eating at home, etc. Although our incomes are high today, they certainly weren’t always this way, and we could never afford our homes if we didn’t sacrifice elsewhere.

  8. For seven years we had stayed debt free from credit cards,then suddenly we became trapped again.
    While we are able to pay our bills on all 9 credit cards(4 of which have been all paid off)We always pay 30-40% more than the minum due amount.
    This reduces the interest each month.Many people give advice to start with the smallest owed balances first and then work your way to the larger debts,but I have found that by paying a little more on the larger debts reduce the interest much more than a smaller debt.
    For example a card where one owes under $500.00 only accumulates an interest of around $4.80 per month,whereas a debt of $3,000.00 is around $50.00 interest.
    The key I have found is to get the higher debts to a managable size,then attack the lower debts pay them off,and move on to the higher debt reduction.
    As you pay them off you can re-negotiate the interest rates with the card issuer better,make sure that you keep all of the “terms” they have sent you since you first recieved the credit card.
    This will help you to know what kind f bank you have been dealing with.
    For example whether or not they have taken advantage of you once your debt was higher,this is a well known practice,such as the more you charge the more frequent a card isuer increases the monthly interest rate.
    As an example I had noticed that WAMU,had recently been sending new revisions each month for the last 7 months or so,this being an indication to me that something was going wrong with Washington mutual,now as we learn they are being bought out by JP Morgan.
    This kind of stinks for me I’m guessing mostly because I’m thinking JP Morgan will now increase the interest rates and being unable to fully pay off the balance I’m going to be trapped into paying additional amounts.
    As JP Morgan won’t have any loyalty to me because as far as they are concerned I’m a bad debt until it’s paid.
    Though I have never been late on a single payment,well see next month how all of this pans out.
    Anyhow I appreciate you sharing with us this information and hope that everyone takes your advice that being responsible is something that must be learned in steps.
    It’s about time people started making choices for themselves rather than having dependancy on others to make those choices for them.
    After all people don’t need to be protected from themselves,they just need proper guidance.

  9. A friend of mine manages retirement funds for older folks. Most people come in with 10,000 dollars needing help. Recently he had a couple come in for help. They had raised a family and bought a home on their income from average communications jobs and wanted to know how best to invest their nest egg…..almost 2 MILLION DOLLARS!

    It can be done, quit wasting your money!

  10. Great post. I have lived without a credit card for two years now and wish I had started earlier. Except for my mortgage (a 15 year so I could pay it off sooner), I am debt free. I am currently saving to buy a car with cash. Until then, I will drive my 13 year old car. I am amazed at how many people think that credit is necessary. I have an emergency fund and it has been the best stress reliever of all. I work hard and save, tithe regularly, I am raising a daughter essentially on my own, and probably live more of a modest life than most. Mostly, I am happy.

  11. Money is a funny thing, and just to illustrate how funny money is…One guy has a dollar and thinks he is rich because he’s never had more than two cents. Another guy has ten dollars and thinks he’s poor. Money is just like the glass-half-full-half-empty thing. If you think you have money, you act like you have money even if you don’t. If you think you don’t have money, you act like you don’t have money even if you do. I have always taken the second path illustrated here. I bought a home with my husband at 27 years of age, and paid it off in full by age 33…IN NJ, on average 36k a year jobs. Yes, we ate more than our fair share of pancakes and spaghetti, but now at age 40, I am so thrilled to be able to have the time, the money, and the peace of mind to not have to struggle to pay bills, or worry about “shelter”, which is a basic human need. I can focus on health which declines with age, friends, seeing the world, and living. I still eat all homemade meals mostly. Oh, did I forget? I was able to quit my job in the year 2000 and have not needed to go back to work at all. Because of this, I opted to take some culinary courses at our local college, and we love the food that I make now more than any restaurant could churn out. It is how you see the money you have or don’t have that determines EVERYTHING. Now, in two ways I say this…go green. Both with spending habits of using cash, and with cutting your energy costs. Anyone who wants to do it can do it. End of story.

  12. The first good news article I’ve read in months…I too had no credit cards or car payments for years, owned a multi-family home that payed for itself and was cruising….until a good “friend” kept bugging me that I could get rich flipping houses because my credit was so good and could get money…went fine for the first year or so….then got my hand caught in the cookie jar when it plummeted. Now I have $50K in credit cards, lost $100K on the flip, forcing me to sell my income property and pay huge capital gains, which by the way, was paying for most of my initial residence…now I am trying to short sale my house before it goes into foreclosure and trying to negotiate with credit card companies….I plan on renting for much less than I can own, pay off credit cards starting with the smallest one and never look back….at least my car is payed for….sorry for the long comment….I hope this is a good lesson for someone. The government and big business want you to buy and take loans to stimulate the economy…..don’t fall for that one! …save and pay for what you want.

  13. Glad to see that there are a legion of folks who don’t follow the example set by the government and realize that restraint and frugality are virtues. I live within my means and have always done so…something my parents stressed and lived by as well. The biggest problem this country faces is TOO MUCH DEBT. The US government borrows like there’s no tomorrow and Americans in general do exactly the same thing! But ther will be a tomorrow-it is HERE NOW. For those of us who have lived within our means, nothing is quite as rewarding as knowing that REALITY has finally come home to roost.

  14. Living frugally depends on the amount of income you have to begin with. For example, a grown child still living free at his parents house. Everyone has different incomes and may not be able to sacrifice much more. I will admit though that many people live above what their income is.

  15. I have been living without debt for around eight years now, and I definately have significantly reduced stress levels relating to my personal finances. I have also saved signifcant sums of money in investment and retirement accounts. After a period of adjustment to the new way of running my finances, I find myself happier, healthier and financially secure. The one side effect that I didn’t count on is my credit rating. With no credit card debt, no mortgage and no car payment for the last eight years, my credit scores are not strong enough to obtain decent terms for a mortgage, now that I am in a position to buy a house. Apparently you can only borrow money if you already owe money. My choices at this point are to finance a car and obtain higher balance credit cards in order to increase my credit scores over the next year (putting off the home purchase for a year or more), or continue saving until I can buy the home with cash (another 3 or 4 years at least). I am far happier living without debt, however this is a side effect that I didn’t anticipate that people should be aware of, I might have handled things differently in order to maintain my credit scores (maintain credit cards with high credit limits, just paid them off each month).


  17. I agree. If we don’t have the money, then we don’t buy it. We pay for everything in cash. It really isn’t that hard of a concept. We don’t make a ton of money by any means, but we are still able to go on vacation, and drive cars that are decent (Not Brand new, but gets us from point a to point b) All paid with Cash. Our House is the only thing we borrowed for, but even that will be paid off in 15 years instead of the norm 30 yr loan, and we didn’t buy a monster of a house. We bought what we knew we could afford. Anyway, you had great advice! Make your money work for you, and not the other way around!

  18. Very inspiring article for someone like me who has decided to finally make the sacrifices and beat this debt thing once and for all!!! I have my family on a 3 year plan to be completely rid of debt (except for mortgage)- I’m shooting for 2, but am trying to be more realistic. Although we just started a couple of months ago, I don’t feel as stressed as I did without a plan…it is a great feeling to be able to pay off some bill every month, or even to reduce it by a significant amount. Yes – I have discovered it requires a lifestyle change – probably the most challenging obstacle to overcome..but once you get over that, it becomes easier. My wife and I have set up goals each month that we strive to attain and then we focus on that goal until it is achieved. It will be a long arduous journey (more mental and emotional), but the end result will be well worth it. One thing we always remember is that this situation was created by us and no one else.

  19. Carrying a debt on a credit card is bad, using one can be good. I regularly get about $40 a month from Discover ($500 a year) for doing nothing. I have never paid a penny of interest. Carrying debt is bad, using a credit card can be good.

  20. I have never really borrowed money except for a car and thats only two in the last 35 yrs. A pretty good rule to live by is “if you can pay for it then don,t buy it” I use a credit card but always pay off the balance this way im not writing checks or carrying cash.

  21. As i mentioned in a previous post the Reality has come home to roost finally. I’ve attched a link to a sobering article on the coming credit card crisis…Just another reason to live within your means and not follow the crowd of foolish folks who must spend for today without thought to tomorrow. With all the recent action by governments & central banks all over the world (who are pumping up the money supply without thought to the consequences) it is high time for you to take inventory. I hear people saying the government must fix the economic crisis. The Government doesn’t Fix anyting- it only creates more problems and cares not for the consequences of its actions. The American People are Mostly responsible for the mess they face…They went out and borrowed that which they could not afford, spent that which they did not have to spend, and still believe that the tree grows to the sky without limit.
    But there are limits…and we must all live within them…or ELSE!

  22. Wo! I am impressed and very happy to see your approach. Impressed because you have escaped from this evil thing..’debt’ in an atmosphere full of debt. Its great you are sharing this information.

    Also, this goes in line with what our Prophet Muhammad (Peace be upin him) said regarding debt. ( I am a muslim and interest taking, giving or recording is forbidden for us strictly and I want to escape it too- and budget is a good idea). The prophet (PBUH) used to pray frequently ot God the one and only, protect me from being in debt.’ when asked why so he said, because a person in debt lies. Also, Prophet (PBUH) said that rich is not the person with a lot of money but rich is the one who is content with what he has, or was it, rich is he who has all that he needs. These are not the exact words butr the gist of them as i remember. I see you have learned this from your experience.

    Anyways, for more advice for stayin away from debt…i will consult you hopefully, if you don’t mind.

  23. Clean America: Reading your post made my head hurt. I can’t believe people go through that amount of trouble just to spend money they don’t have yet. Instead of spending a months worth of money before you get it, why not save a months worth of money to spend next month? Makes so much more sense to me, no fees, no wondering if you can afford to pay it back, it’s your money and it’s already been earned.

    I am 22 years old and have NEVER owned a credit card and god willing I will never need to. My only concern is that one day I will need to take out a mortgage and won’t have any credit to do so. A mortgage is the only thing I’m really worried about (cars, appliances and electronics I’m pretty sure I could save to pay for, but I don’t make enough money so it would take me 10+ years of saving everything I can just to afford something modest like an $80,000 home, and meanwhile where will I live?). I’m sort of hoping my mom will apply for the mortgage for me in good faith that I will pay it regularly, then I will never need to worry about credit cards ever. I have seen what they do to people, I have seen too many people go into huge debt and bankruptcy and work their wholes lives with nothing to show for it because they pissed their money away on frivolous stuff they couldn’t afford, made possible by credit cards. Count me out, thanks.

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