The following article is contributed by / co-written with Amy Nickson.
Becoming debt free is not easy; it is not something that you can achieve overnight. To get out of it, you need to make a lot of changes in your lifestyle. You need to say “No’ to many temptations. In a word, you need to follow a financially disciplined life.
The best part of paying off debt is, it helps you to develop some good financial habits. It will help you to avoid further financial problems, which is great.
You can become a pro in managing money. Thus, you should retain those good habits forever.
Here are some habits that you should keep following in your life:
1. You should keep following your budget
Budgeting is the key tool that helps you get out of a financial problem. Budgeting not only helps to track your finances, it also helps to pay off your debt.
• When debt payoff is your main priority, you need to include the debt payments as the main expenses in your budget. To do so, you need to cut down all the unnecessary expenses to save more money. So, by following a budget, you can manage your basic expenses while making the debt payments consistently.
• Following a monthly budget will help you to understand where your money is going. You can decide what are the priorities for the month, and where your money will go. Whether you want to focus on spending your money, the choice is yours.
• The budget helps you to fit in some important purchases. You can take advantages of the sale to buy things at a cheaper rate.
• If you keep following a budget, you will be able to save money to achieve many life goals like vacation, retirement or college without facing the financial crunch.
Thus, it is recommended not to stop following a budget even if you successfully paid off your debt.
1. Remember, a budget is a living document that you should update as expenses change.
2. Revise the budget time to time to make necessary modifications to get the best result.
3. If your debt amount is huge, you may need to boost your income.
How can you create a budget?
Budgeting is not scary; it just needs your patience.
• To create a budget that works you need to write down your total income.
• After that, you need to list all your expenses including your regular bills (mortgage, electricity, etc.), irregular bills (quarterly payments like insurance or HOA), and debt payments.
• Now, subtract the expenses from your total income. Make sure your income minus your expenses is equal zero. Otherwise, you have to cut down expenses or boost the income.
• If you don’t like using a spreadsheet, use online budgeting apps.
2. Keep saving money
The debt payoff journey helped many people to find out ways to save money. People started living within their means to save more.
At first, they face difficulties, but with time they can easily change their lifestyle. They have started building a good habit of saving money gradually.
Why is saving money important?
• To get out of debt faster, you need to make larger debt payments toward your debt. Making the minimum payment is not enough; you may end up with paying more. Thus, saving money is crucial. You have to find out every possible way to save as much as you can.
• So, you have to continue saving money even after paying off your debts. It helps you to build an emergency fund. Thus, you can overcome any overwhelming situation without falling into the further financial problem. Try to save at least 3-6 months of savings into the emergency fund.
• After building an emergency fund, you should save more so that you can build a retirement account to secure your financial future.
How can you save money in your daily life?
It is important to stay focused on saving money consistently to avoid any kind of financial troubles. As I said earlier, you just need to stay within your means.
• Cut down junk expenses like cable, Netflix, gym membership, and magazine subscription etc.
• Pay yourself first. When you receive the pay-check, set aside a certain amount each month.
• Buy what you need. Carry a list when shopping.
• Stop wasting food. Plan your meals. Use the leftovers to make a new meal.
• Consider frugal fashion.
• Use cash as much as possible.
• Don’t spend more than you earn.
• Set auto pay.
• Don’t stop the following budget.
3. Keep checking your spending behavior
A lot of people have changed their spending behavior during their debt payoff journey. Now, they are more responsible when it comes to spending money. They don’t want to blow their money unnecessarily anymore. They stop splurging their hard-earned money because they don’t want to fall into financial trouble again.
Why is important to create better spending habit?
Spending money is usually a fun part of life. But, if you spend your hard-earned money meaninglessly, you will not be able to manage your finance. You should grow a habit of better spending to get more financial success in life. Spending money in a smart way helps to save better.
How can you build a better spending habit?
• You need to set the spending goals based on what is important to you.
• Try to research before you spend. Consider comparison shopping to get the best value for an item.
• Consider a “walk through” before spending money on an item.
• Check out the items that you already own. It will help you to spend money unnecessarily.
4. Keep trying to use the credit cards as less as you can
When a person wants to pay off the debt, he/she has to reduce the usage of credit cards. Gradually, it becomes a habit. So, after paying off the debts, you should keep trying to use credit cards less.
How can you avoid excessive use of credit cards?
Since credit cards are convenient, people swipe their cards to get whatever they want without thinking about their affordability. Remember, using a credit card is not enough, you have to make the payments on time.
• Make the credit card payments within the stipulated time.
• You should understand that if you can’t buy an item with cash, you shouldn’t buy it using the credit card.
• Carry cash; it helps to stay within your means. Once you are out of cash, you should stop spending money for the day.
• Avoid buying groceries with your credit card. Paying interest on disposable items is a no-no.
• Don’t charge what you can’t afford just to earn reward points.
• Limit the number of credit cards.
• keep trying to make the credit card payments on time to avoid painful debts.
• Pay the balance in full each month.
• Read the fine prints before getting a credit card.
Advantages of practicing the good financial habits even after becoming debt-free
If you keep retaining the good financial habits that you learned from your debt payoff journey, you can become more profitable. Here’s how:
• You can achieve financial freedom earlier
If you keep following the good financial habits, you will be able to save a lot of money. Thus, you can invest your money. Well, to get the profit from the investment, you have to take some risks. And you can take the risk when you have enough money to meet your basic expenses.
So, once you have started saving money, you can try some profitable investments to grow your money. Thus, you can get more return and actually move forward toward the financial freedom.
• You can take early retirement to stretch your golden age
Do you love traveling? Do you dream to roam the world? If yes, then you should try to work hard to say “Goodbye” your work.
To do so, you have to save enough money in your bank account to secure your financial future.
Once you secure your future, you can take an early retirement from your work and fulfill your dreams.
Remember, forming the good financial habit and mindset help to become debt free easily. And you should stay debt free to avoid money worries in life.
Don’t scared, you don’t have to deprive yourself to stay a debt free person. You can still enjoy your life. You just need to live within your means and follow the good financial habits.