These days we are often taught that in order to have the thing we want in life, we must buy on credit and incur debt. However, that simply is not true. There is a better way; you can have the things you want and still live debt free.
Living Debt Free Takes Discipline
The first step toward living a debt free life is having a mind set of discipline. Just like dieting and exercise, you must have a goal and a system in place. If you're already in debt, you will have to change the way you think about credit and how you spend your money. You will also have to learn how to control impulse spending.
Budgeting - The Non-Negotiable First Step to Living Debt Free
Budgeting isn't something everyone enjoys, but it is a critical skill if you want to live debt free. You have to know how much money you have coming in and how much is going out and designate where it's going. When you're in debt, you are no longer in control of your money; the lender or creditor is.
There's no rule about how you should budget, so use whatever system works for you. It might be as simple as a monthly spreadsheet of income and bills to start. There are also online systems and smart phone apps which may make it easier for you. The important thing is not which system you choose, but that you maintain your budget consistently.
Cut Your Expenses to Free Up Money for Savings
This is where most people fail at living debt free. They're simply not willing to give up expensive holidays or the new car every two years. But if you want to live debt free then you must either earn more or spend less. If you're not sure where you can cut back, try tracking every expense for a month. You might just be surprised at how much you spend eating out, renting movies, and buying new clothes.
Save for a Rainy Day
Before you can truly live debt free, it can be helpful to build an emergency fund. Otherwise you may just find yourself right back where you started the first time the car needs a major repair. The minimum goal is $1000 in savings set aside for true emergencies such as an unexpected trip to the hospital or visit to a family member who lives in a different state or country.
Make a Plan to Pay Off Your Outstanding Debts
With your budget in hand, take a look at your outstanding debts and plan out how you'll repay them.
Depending on how much debt you have, it may take months or years to be completely debt free, but if you maintain your budget and live within your means, you will be successful.
Disclaimer: The information above is intended as general educational content only and is not meant to take the place of expert advice from a professional financial counsellor. For advice & support about a range of financial issues go to https://www.financialcounsellingaustralia.org.au to find a service in your state.