emergency fund Archives

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!

Your Budget Is Unrealistic

One of the most common reasons a budget fails is that it’s unrealistic. You may not have allotted enough in areas such as groceries (you can only cut back so much!), or you may have allotted too much for debt repayment. Yes, you really can allot too much for debt repayment if you’re trying to pay off debt too aggressively.

The key to success with a budget is moderation. That means you try to save more than you have been and spend less than you have been without sacrificing everything in life that gives you comfort or pleasure. It’s more important to have a budget you can stick to than pay off debt aggressively for a few months and then give up.

You Aren’t Really Committed To Living On A Budget

Another reason your budget may not work for you is that you’re just not committed to living on a budget. Or perhaps you are, but your partner isn’t. If this sounds like you (or your partner), then the best thing you can do is change how you feel about a budget.

Many people think a budget means restricting yourself and having to count every penny (or nickel, as we no longer have penny coins in Canada!). However, a budget is actually freedom. Once you know what you have to allot to fixed expenses (such as your mortgage or rent), you have the freedom to allot the rest of your money any way you want!

You Haven’t Left Any Money In Your Budget For Fun

Yes, you can still have fun even if you’re living on a budget! There are certainly lots of ways you can have fun with little or no cost, such as:

Going for a walk or attending a free festival.

Downloading books from the library – you don’t even have to leave your house!

Borrowing DVDs from friends or making better use of the streaming subscriptions you already have.

By doing things like this, you’re freeing up money to spend in other ways. So instead of buying four books a month, you buy one. Or you buy a fancy coffee during your walks once a month, instead of once a week.

You Don’t Have Anything Put Aside For An Emergency

Nothing throws off a budget like an emergency, whether it’s a roof leak or a job loss. That’s why it’s so important to have an emergency fund. So how can you get back on track after an emergency?

The best thing you can do is look at your budget and see where you may need to make changes. Whether that’s allocating more to your emergency fund or taking on a second job, you’ll have to redo your budget to reflect your new reality.