Debt-free living is not a common term that you hear nowadays. Debt is a normal way of life for most. Saving up to buy a car or a vacation seems crazy. Why bother when you can get a loan or whip out your credit card? This is the very reason why US credit card balances totaled $829 billion in 2018.
I get it. Why bother waiting and saving when you can buy it now? You’ll pay it off eventually, so what’s the problem?
Debt encourages reckless spending and living beyond your means. It seems great when you’re able to buy what you want when you want it, but that instant gratification doesn’t come cheap. And to top it off, you’re paying more with money you didn’t have in the first place.
With debt-free living, decide how you’ll spend your money, instead of wondering where it went. Now, doesn’t that sound wonderful? I should know. I have been debt-free since July of 2019. My hubby and I paid off off $72,000 of consumer debt, all on one income. So, I know a thing or two about how to live a debt-free lifestyle, so follow along and get comfy. I promise you, it’s worth it.
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What is Debt Free Living?
Debt free living is living without debt. Simply put, use cash to pay for expenses instead of relying on debt to finance your life. Most debt-free communities exclude mortgage and house loans as part of debt-free living since it’s a large purchase, with the ultimate goal of paying it off too. It’s a simple concept that takes sacrifice, patience, and learning to say no when you can’t afford it. What debt-free living offers is priceless: financial freedom, security, less stress, and bigger life opportunities.
Debt Leverages Your Future Income for Past Purchases
Like anything, debt seems like your friend when you’re able to pay the monthly payments. You can buy what you want without having to pay the full amount or waiting to save up for it. Just get a loan or charge it on your credit card is what you rationalize. Everyone else has debt, so what’s the problem?
In the end, when you break it down, you’re signing away years of future income for instant gratification, and not to mention, adding tons of risk on top of it.
When a large portion of your monthly income is allocated to debt, you’re barely surviving with what’s leftover. In a nutshell, you’re living paycheck to paycheck. If your car breaks down, out comes the credit card. According to a survey from Bankrate in January 2019, most Americans are unable to scrape up a $1,000 for an unanticipated emergency. Debt creates a vicious cycle that never ends until you realize it’s stealing your future. With debt, future income is pledged to the choices that you made in the past.
How did I stumble upon Debt-Free Living?
After reading Dave Ramsey’s book, the Total Money Makeover, I became obsessed with debt-free living. Frankly, before then, I was completely oblivious to the fact that a debt-free community even existed. The thought of buying a car with cash didn’t even cross my mind. When I learned that most living a debt-free lifestyle pay their mortgages off early too, I became even more intrigued. This way of life sounded amazing, and I was determined to learn more. Add to the fact that I had just found out that my hubby would soon be jobless, and and the fire was lit.
At first, I rationalized that this debt-free community was wealthier than me. Surely, that’s how they could live debt-free. Shockingly, the more I listened to Dave Ramsey’s podcast, the more I realized that I was sadly mistaken.
The more I listened, the more obsessed I became. I could not ignore the fact anymore that it didn’t matter how much I made or how many financial obligations I had. My income was more than some of these families, so I could no longer cling to the notion that I was too broke to make a change. The time had come to take the steps to become debt-free, so let me break it down in 5 easy beginner steps.
How to start living Debt-Free
- DECIDE TO DO IT: Make the decision to live debt-free. Knowing that debt is a problem is half the battle. Pledging yourself to this new way of life is the other half.
- GET ON BOARD WITH IT: Make a financial pact with your spouse or partner. Both of you need to be on the same page. You can’t make any progress if your spouse or partner continues to overspend. You can’t dig yourself out of a hole if your spouse is throwing the dirt right back in. If you’re single, find an accountability partner.
- DREAM IT: Envision why you want to be debt-free. I know it sounds hippy-dippy to some of you, but this step is extremely important. Write down your dreams and make them as specific and as detailed as possible. Paying off debt is hard. Fall back on these dreams when you want to give up.
- FACE IT: Write down and add up all of your debt balances, not just your monthly debt payments. You must face your total debt balance, not just your total monthly payments. We justify purchases simply because we can afford the monthly payment. Staring at your total debt balance will help you understand the gravity of your situation.
- BUDGET IT: Create a zero-based monthly budget that allocates every single dollar to a specific purpose. A budget is simply a spending plan, so don’t be scared of it. You decide how to spend your money, instead of letting it rule you.
Successful Debt-Free Living Tips
- Prepare yourself for a life-long journey. Change your lifestyle and attitude.
- Be content and thankful for what you own and the adventures you have experienced.
- Deal with spending triggers and replace them with healthier alternatives like reading or exercising.
- Save a $1,000 emergency fund, so you won’t rely on debt when an unexpected expense occurs.
- Prepare a zero-based monthly budget. Write it down and track it, either manually or with a financial spreadsheet.
- Use the cash envelope system for budget categories that you need more control over. Physically withdraw cash for a category like groceries, and stick it in an envelope. Only purchase groceries with cash from that envelope. Staying on budget is easy since you can only spend the cash from your envelope each month. When the money is gone, you’re done.
- Stop using your credit card and taking out loans.
- Cut out any luxuries and find ways to save on normal living expenses. Here’s a great article on what I stopped buying to pay off debt.
- Stop eating out, start meal planning, and cook more at home. This was the most effective strategy that saves me hundreds of dollars.
- Save money in sinking funds, focused savings towards known expenses. I have sinking funds for Christmas, car repairs, events (birthdays, anniversaries, etc), my pup, house repairs, and back to school expenses. It’s easier to save a little each month and have the money sitting there when Christmas rolls around. Check out this post how to survive Christmas Debt-Free.
Common Questions About Debt-Free Living
Do I really need to stop charging on my credit card, even though I pay it off monthly?
Yes, you need to lose the habit of using your credit card. Building consistent financial habits take time and you need to lose your lose your reliance on debt to finance your lifestyle. Having a credit card balance is proof enough that you didn’t have the cash to pay for it nor the discipline to pay it off quickly. Don’t fool yourself into thinking that it may not happen again. Life happens. It’s easy to convince yourself that you’ll pay it off later with your next promotion, paycheck or tax refund. So, do yourself a favor, and just stop using your credit cards.
Do I really need to stick to a monthly budget in order to start my journey towards debt-free living?
Yes, you need to set detailed financial goals and the best way to achieve them is with a monthly budget. Don’t think about budgeting in a negative way like a diet: restrictive, boring, and hard to stick to. That’s farther than the truth that you think.
Having a budget gives you the freedom to choose how you spend your money. Debt happens when you spend without prioritizing and knowing where your money is going. Prioritize what is important to you, or believe me, the money will vanish. In the beginning, your focus will be paying off debt as fast as possible. After you’ve become debt-free, budgeting is just as important. It will keep you focused to save and invest, so you won’t have to rely on debt ever again.
Do I really need to stop eating out?
Yes, I strongly suggest that you cut eating out as much as possible, especially at the start of your debt-free journey. This was by far the fastest way I saved money, but I caution you to be realistic. Tailor it to your needs and your family. Decide how much to budget for dining out and restaurants. Budget even a small amount since life happens and it’s sometimes more convenient to grab some grub on the way home.
Do I really need to use cash envelopes?
Yes, you are trying to change your money habits in order to live debt-free. Paying with cash forces you to think about your purchases. Having to fork over cash instead of swiping a card makes each transaction more real. Visually and tangibly touching your cash forces you to face the reality of how much you can afford. “Is this purchase really worth it?” Using a debit card takes away the mental recognition of how much you are truly spending.
For more information on cash envelopes, read: Easy Guide to Cash Envelopes, Easy DIY Cash Envelopes, and The Best Cash Envelope Wallet.
Do I really need to set up sinking funds since I have an emergency fund in place?
Yes, your emergency fund will cover unanticipated emergencies. Regular car maintenance and annual car registration always happen. These expenses are not a surprise, so you should budget for them. The same goes for holiday spending. You should save a little each month for these known expenses in sinking funds, specific savings accounts. You’ll gain the security of knowing that you don’t have to tap into your emergency fund or pause your debt snowball when you need to spend the money. Plus, saving teaches responsibility, accountability, and planning for your future.
The Last Thing You Need to Know about Debt-Free Living
Living debt-free is not normal in our society. Marketing campaigns prompt us to spend recklessly with credit to fund lavish lifestyles now, not later. But, let me tell you, debt-free living is alive and well, and so worth it. Paying for cash and not worrying about how you’ll pay for it later is life-changing. I have been debt-free since 2019 and it was the best financial decision I ever made. Commit to debt-free living today. You won’t be disappointed.
Please comment on your debt-free living journey, tips, or struggles.