No matter if you have a little or a lot of debt, you can start learning a few habits that will help you chip away at it.
Staying out of debt is simple, but it’s not easy. It requires resilience — forgoing impulsive purchases in exchange for long-term financial freedom.
Personal debt can be categorized as necessary or unnecessary. Necessary debt can generally be linked to assets such as your home mortgage, a basic car for getting to work, or a college degree. Unnecessary debt, on the other hand, might include routine credit card charges or installment loans for items that rapidly decline in value.
If your goal is long-term financial freedom, avoiding unnecessary debt is crucial.
These simple habits can help you achieve this goal:
1. Live below your means. Living below your means requires that you discover what those “means” are. This could entail tracking your income and expenses over a period of time to learn where your money comes from and how it’s spent. You might be surprised. By spending less on the little items that add up quick (like daily coffee shop lattes), you’ll be able to save for the future and develop long-term wealth. Take a week and stop all impulse spending….it will enlighten you. Buy nothing for a week that you do not actually NEED and see how many times you reach for your wallet.
2. Save for emergencies. By setting aside money in easily accessible accounts, you avoid racking up credit card bills when unexpected expenses occur. Such expenses could include trips to the emergency room, replacing the water pump on the family car, or patching a hole in the roof. A reserve fund can also help you survive periods of unemployment without incurring additional debt.
3. Go into debt for a good reason. If you decide to incur debt, know what you’re doing. Think about how valuable the item or service will seem three months from today. Also, ask yourself whether you can pay off these new charges out of next month’s income.
Have money taken from your bank account just after your paycheck hits and put into another account that is meant for one and only one purpose: paying off debt or saving for something. Be true to yourself and use that money for the purpose you have determined is most important to change your financial situation. Have the money removed from your ability to spend money you do not have and see how quickly you adjust your impulse spending habits.
Staying out of debt isn’t always exciting, but the long-term benefits are substantial. Give us a call if you’d like to learn more on how you can save by reducing your tax obligations.