Do you want to stay Debt Free and happy? Your long debt free journey is over and you don’t EVER want to go back? How are you certain that you will stay out of debt forever?
Hopefully, you’ve acquired new money skills and spending habits throughout your process and they work well for you. Therefore, it is part of your lifestyle not to use credit.
However, sometimes situations in life happen and you don’t have the cash available right away to handle them. Perhaps you think you have everything under control and it is “just this one time” you will use credit. As much as that sounds safe, the last thing you want to do is pull out that credit card and start all over again. Equally important to becoming debt free is remaining debt free. Your next step is to prepare yourself to never get into debt again.
If you are not debt free but want to start your journey, take a peek at my blog FINANCIAL FREEDOM – 3 STEPS.
If you are curious of the benefits of debt free living, check out DEBT FREE LIVING – WHAT ARE THE BENEFITS?
Below are three tips:
Keep a Debt Free Mindset
Debt free is a lifestyle choice. Embrace this concept to stay debt free and happy. It is very similar to a diet. You may lose all the pounds you wanted to lose but if you did not change your eating and exercise habits for the long term there is a good chance you will gain all those pounds back. Similarly, you may pay off all your debt but if you do not adjust your spending habits, it will creep right back up.
If you want to use credit for a purchase, remind yourself what you experienced during your journey. Furthermore, tell yourself how important this is for you and how proud you are of your achievement.
What are some things that you can do? Below are three tips
Stay Debt Free by Bumping up Savings
Start saving money for emergencies. A minimum of 3-6 months of living expenses is helpful. Be sure to define what an emergency is and when these funds are used. Typically an emergency is a loss of income or unexpected expense such as medical, accidental, or disaster.
Your emergency funds should be used only for necessary living expenses. If you need to dip into them limit the spending so that they can be used for a longer period of time. In other words, essential spending only.
Once you have a solid emergency fund continue saving into another fund that allows you to spend money on nonessential items. Contribute to this fund regularly so it is never depleted. I suggest opening a separate bank account. You determine the minimum balance you want to keep in this account and the amount you want to contribute regularly. Link it to your debit card. Do not use your credit card.
My Bucket Method to Stay Debt Free
Years ago I created our system at home and I called it our Home Bucket Method. I never want to go back to owing anyone any money so I am very careful to always have enough “just in case”.
We started with one account for our emergency funds and then opened a second account for another spending as mentioned above. Eventually, we had multiple savings accounts (buckets) to manage our different goals.
Below is a snapshot of our method
I use Quicken for my home finances. Although I think this would work with just about any financial app or software., I like Quicken. We have one actual bank account (other than my emergency funds account). However, I have set up Quicken with many different accounts based on our home goals.
As an example, some of my accounts are below:
Savings for Property Tax – We do not have a mortgage so our property tax is not included in our house payment. We live in California so this is quite a large tax bill.. I take the annual property tax bill and divide it by 12 to get the monthly expense. Each month I contribute the money to our savings account. But, I enter it into Quicken’s “Property Tax” account. When property taxes are due I am not in a panic. I am prepared.
Savings for Income Tax – It is the same concept as above. My husband is self employed and we often need to pay income tax on his earnings since the tax is not deducted from his check. Each time he is paid I contribute 40% of his pay to this account. When taxes are due there is no surprise. Well, sometimes there is. Occasionally I overpay the savings account but that surprise is in the right direction.
Savings for vacations – same concept. We estimate the cost of our annual vacation and divide that by the number of months we have until the vacation and contribute that amount monthly. By the time the vacation rolls around we have enough to pay for it in cash.
I think you get the idea. You can set up an account for just about anything. Birthdays, holidays, a down payment on a home, a car, school expenses, whatever you desire. If you have an amount that you plan to spend in mind, divide that by the number of months, you need to reach the goal and contribute that regularly and you will get there.
It takes planning and sometimes patience. However, keep that debt free mindset and you might find you are creative with your plans.
How do you stay debt free?
Thanks for reading!
Stay balanced,
Jill