Staying out of debt and living within your means

“If you will live like no one else, later you can live like no one else.” – Dave Ramsey

Many of my articles over the last several months have dealt with the topic of saving money, whether for retirement, a home, an emergency fund, a vacation or some other worthwhile objective. While all of these goals are vitally important, I would be remiss if I didn’t address the obvious – staying out of debt.

Although staying out of debt should be a major goal of every consumer, it’s not always easy, and, unfortunately, is often viewed negatively. Many people think that financial responsibility goes hand in hand with denying themselves the things they want in life. Quite to the contrary. By using the following “staying out of debt” practical steps, you will better understand how you can still have the things you want in life without falling deep into debt.

1. Monitor your spending – create and follow a budget. Whether you write down your income and expenses on a legal pad, create an Excel spreadsheet or utilize one of the many budget software programs out there, the road to staying out of debt and saving begins with a budget.

2. Reduce your overhead – once you’ve successfully completed your budget, take the time to completely analyze your expenses. This will be a real eye-opener as to where your money is going. Look at each expense separately and see if there is a way you can reduce it or even possibly eliminate it altogether. Perhaps you can raise the deductible on your home and your automobile insurance or lower your cell phone or cable bill. Don’t be afraid to shop around for better rates.

Sometimes bigger changes are needed to help you get a strong foothold on your finances – helping you stay out of debt and save more money each month. For example, are you spending a small fortune on gasoline each month or is your housing expense gobbling up most of your monthly income? If so, it may be wise to trade-in that gas guzzler for something more fuel-efficient or to downsize into a more affordable house.

Reducing your ongoing expenses and monitoring your spending habits can add up to big savings over time.

3. Build an emergency fund – I talked about the importance of this in one of my recent articles. An emergency fund is an integral part of staying out of debt. Expect the unexpected by opening a free or low-fee savings account that is specifically earmarked for unforeseen expenses. To make it easy, set up automatic withdrawals from your checking account.

4. Increase/supplement your income – if, once you’ve created your budget and whittled down expenses, you’re still left with more month than money, it may be time to consider ways to increase or supplement your income.

5. Live below your means – probably one of the most difficult concepts or behaviors for most Americans to grasp today. Like stated earlier, most people think that saving and staying out of debt is limiting their freedom to have what they want out of life. However, no matter how much money you make, being frugal gives you a sense of freedom that people living beyond their means will never know. Why spend sleepless nights worrying about a high mortgage payment or a fancy car you can barely afford? If you can learn to live below your means not only will you avoid debt, but as your income grows, you’ll have enough money saved to have whatever is important to you.

6. Save for the things you want – the old-fashioned way of saving for things you want and need and paying cash is the best way to stay out of debt. Yes, you can pay for things with a credit card, but make sure you have the funds to pay the card completely off, avoiding the high interest rates, when it comes due.

7. Consider credit card alternatives – there are more and more people today choosing not to use credit cards. Others shouldn’t be using them because they have problems with overspending and getting trapped in recurring debt. Some good alternatives to a regular credit card include debit cards, pre-paid debit cards, and of course, cash.

Again, successfully practicing these principles isn’t always easy. But, if you have a plan in place that can help you gain control of your finances, you will always have your head above water.

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