You may be thinking that living debt-free is impossible! And it’s not easy, but it’s well worth it, as living debt-free can bring a sense of financial stability and freedom to your life.
These are the vital steps you need to take to move towards living a debt-free life:
- Create a budget.
- Pay off debt.
- Stop accruing new debt!
- Live below your means.
- Build an emergency fund.
- Invest in your future.
Create a Budget
One of the most critical steps in living debt-free is creating a budget. A budget will help you track your income and expenses, so you can identify areas where you can cut back and save money.
List all your fixed expenses (rent or mortgage payment, car payments, utilities, etc.), then your variable expenses (shopping, dining out, etc.). From there, determine how much money you have left over and see if there’s anything you can cut back on. This may seem like a lot of work, but you can quickly find all this information from your online banking portal.
Pay Off Debt
If you have debt, pay it off as soon as possible. Start by paying off high-interest (credit card) debt first, as this type can quickly spiral out of control. Once you’ve paid off high-interest debt, pay off other debts, such as student or car loans.
Not sure how much debt you have or what it’s costing you? Make a spreadsheet that lists all your debts and their interest rates.
Stop Accruing New Debt
Once you’ve paid off your debt, avoiding accruing new debt is essential. This means only making purchases you can pay for in cash or with a debit card.
You may want to consider using credit cards for everyday purchases and only use them for emergencies or large purchases that you can pay off monthly. However, if you’re good at paying off your balance every month and earn points or cash back on your credit card, using your credit cards regularly should be fine.
Build an Emergency Fund
An emergency fund can help you avoid accruing new debt when unexpected expenses arise. Start by saving a small amount each month, and over time, build up your emergency fund to at least three to six months’ worth of expenses.
Live Below Your Means
Living below your means means spending less money than you earn, which can help you save money and reduce your risk of accruing debt. Look for ways to reduce expenses, such as reducing your monthly bills, cooking at home instead of eating out, and shopping for deals.
Be mindful of your spending and avoid impulsive purchases. Ask yourself if each purchase is necessary and if you can afford it. If you can’t afford it, wait until you can.
Invest in Your Future
Once you’ve paid off your debt and built up your emergency fund, invest in your future. The earlier you start investing, the more time your money has to grow, which can help you achieve your financial goals.
I suggest you start with a Tax-Free Savings Account (TFSA). You can take your money out at any time without penalty and never pay taxes on withdrawals or any gains you make in the account.
Conclusion
Living debt-free requires discipline and a focus on spending and saving, but it’s well worth it! You can achieve financial stability and freedom by living debt-free with patience and persistence.
What’s your best tip towards being debt-free? Tell me in the comments!
