Smart Habits Of People Who Stay Out Of Debt
Getting out of debt gets a lot of attention in the personal finance world, but what about staying out of debt? There are some great lifestyle changes to get out of debt that you can make.
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You may be worried about how you are going to stay out of debt once you’ve paid it off and not get back into the debt cycle again, but I have a tip for you:
Your success is in your habits.
Our brain is incredible – but it is a creature of habit. (See what I did there?!). Our brain enjoys doing the same things over and over and doesn’t really enjoy change, even when we know deep down that if we do something new it would greatly benefit us.
The best thing for us to do is to identify a new habit that will enable us to achieve whichever goal we are working towards and do re-train our brain to do that.
When you start off on your journey to pay off debt, there will likely be a bunch of new habits that you have to start in order to achieve this goal.
Want to know how to stop being bad with money, and find out ways to make extra money to pay off debt? Then this post is for you!
You may be wondering why is it important to stay out of debt? Read on to find out.
#1 Follow a Budget (girl, don’t skip this one!)
To get out of debt, you need to take control of your money and your spending. It’s very empowering!
Download your pretty budget worksheets today to get started.
When budgets are not involved, what tends to happen is that the money runs away from you.
It may go in big surges such as deciding you want to buy a lot of expensive items, or it may trickle away from you with buying little bits here and there.
Creating a budget means that you are making a plan for where you want it to flow. When budgeting, you tend to think a bit more long term and on big financial goals. Instead of just going along and losing time, you know what you want to do, and you work towards that.
You will clearly be able to see how much money you have coming in (through your job after tax, through any benefits or extra income) and how much you have going out; instead of just guessing and realising that you have no money left at the end of each month.
There are various budgeting methods that you can use such as the Zero-Sum Budget or the 50/20/30 Budget. I personally use the zero-sum budget because I like allocating all of my money to specific places.
If you have a financial goal such as saving for a house, it can be easy to say “I really need to save…” or “I really want to buy a house…” and then turn around a year later to see that you have nothing saved.
Following a budget will allow you to specifically allocate money to save each month towards your goal.
This will enable you to stay out of debt because you will have money saved towards your goals and will not dip into your monthly income for things that you want.
#2 Live Below Your Means
Living below your means basically means that you spend less than what you earn. It may sound obvious and simple, but the reality is that many people spend all of their income each month.
It is easily done, especially if you do not have a budget in place or do not look at your bank statements.
If you look at many successful people, you can see that they live below their means. What this means is that they do not spend all of their pay-cheque each month – they save a lot of it instead.
And by a lot I mean – a LOT. Does saving 50% or more of your income sound inconceivable to you? It can be done!
If you want to get out of debt and stay out of debt, living below your means will be the key to doing so. You aren’t going to get anywhere fast if you waste all of your money each month!
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#3 Expand Your Means
This may seem contrary to what I have said above about living within your means, but what I mean by this is that you don’t need to cut back on everything that you would like in life in order to stay out of debt.
If you are in the stage of your journey where you are paying off debt, I think that you should absolutely live below your means – because getting out of debt is an emergency – you are only robbing your future self by staying in debt, and you should work very hard in order to achieve debt freedom.
Once you have reached debt freedom, I am of the opinion that you should expand your means.
Everyone won’t agree with this – but there is nothing wrong with wanting certain things such as exotic holidays if you can afford them due to working hard and keeping your expenses at a sensible level.
If you want a particular lifestyle, you can work hard and smart to achieve this. Increase your income through working more or by raising your rates, and buy the things that truly make you happy.
I wrote about how frugality can clarify your goals because I believe that if you live a frugal lifestyle, it will become pretty much immediately presented to you what it is that you miss, or require to keep your happiness levels up.
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#4 Only Pay For Things If You Can Afford Them
In society today, we are encouraged to spend money on whatever we want, whenever we want. We have much more access to celebrities than ever before, and it’s hard to not compare your own life to theirs, especially on social media platforms such as Instagram.
You can’t even go to a supermarket to buy food without being bombarded with clothes, toys, makeup and electrical products.
We turn on the TV and are greeted with an influx of advertisements – same with listening to the radio or even driving down the road to see the side of the road plastered with billboards.
We see people buying lots of things, going on exotic holidays, and have no idea how they have paid for it (the reality could be that they have gotten into debt to pay for these things – so nothing to aspire to).
For myself personally, when I got into debt it was because I had no support and felt as though I couldn’t do anything to improve my situation.
I saw my peers buying expensive houses, going on holiday, buying new things all of the time – all whilst having savings and staying out of debt. I also loved Instagram, especially the accounts with kids bedrooms and fashion.
I felt like a bad mum – why couldn’t I give my daughter those things that the Instagram kids had? They looked so happy and their families looked perfect.
Of course, social media only portrays the ‘good’ parts of life, and you have no idea what is going on behind closed doors.
A lot of my debt came from trying to be ‘normal’. I wasn’t trying to be overly extravagant, just to try and do some things that I deemed to be a normal way of life for most people.
Once I had gotten myself into debt, I panicked because I knew that I could not afford to pay it back. If I couldn’t afford it in the first place, how on earth was I going to pay it back?!
Some people do think like this, but others think that paying the minimum amount each month is OK, even if it is going to span over a few years – because it is ‘manageable’.
See something you want? Sit on it for a while – see if you still want it after a few days and if you have enough money to buy it, go for it! It’s your money after all, and you can decide what you want to spend it on.
All I ask is that you only buy something if you can afford it.
And I don’t mean putting something on the credit card with the intention of paying it off soon – as that only leads to bad financial times – but having the money in your account and being able to pay straight away or in cash.
This is where having a budget can be a life-saver – download your budget planner here.
#5 Be Grateful For What You Have
Easier said than done I know – but being grateful for what you have is one of the best things that you can do for yourself at any point in your life.
Again with the celebrity lifestyles that we are exposed to now – it has become the norm to aspire to be like these people – and if you are seeing them on social media, they will probably only be posting about the materialistic aspects such as their clothes, cars, holidays etc.
I do believe, as mentioned above, that living a frugal lifestyle is good for clarifying your goals. If you strip everything back to the bare bones, you will find an amazing thing happens – you adjust. Used to living a luxurious lifestyle?
This may be a challenge for you at first, but you can do it.
When you focus on cutting back on your expenses, you will probably end up doing more things yourself. An example of this could be cooking your meals at home from scratch.
A side effect of this will not only be saving money but a sense of accomplishment and pride.
This will transfer over into other areas that you are trying to be more frugal in such as if you are cutting back on transport costs, you may switch to walking or cycling instead of driving, and find that you actually much prefer being out in the fresh air, and feel better for the exercise.
Keeping up with the Joneses is a real thing, and it is a dangerous way of thinking. However, don’t feel bad about doing it – it is part of human nature after all. See another person with something that is better than what you have? Seems useful for evolution and survival, don’t you think?
The problem can be that it is overwhelming, and it’s not so easy as it was to go and get a round stone during the Palaeolithic period that your neighbour had – now it’s more like lusting over a Range Rover because your friend has one (in case you’re wondering, yes one of my friends has one!).
We can get into a bad habit of not realising how amazingly blessed we are. I can be guilty of this myself, but I make sure that I practice positive thinking, and it leads to me feeling very happy with what I have.
I do desire more or different things to what I have, but I know some things I will never achieve (probably too late to be in the GB hockey team!), but some things I can definitely achieve in the future, which is what I concentrate my energy on.
#6 Have Savings
Many people find themselves in debt through no fault of their own – an emergency has happened and they have had no savings to fall back on.
Unfortunately, things happen in life which are completely unexpected and we can not completely prepare for – but if we have some financial help for these kinds of situations, it will make it much less stressful.
If you have a horrible emergency occur, such as the death of a relative, wouldn’t you rather not have the added stress of money on top of everything else?
An added benefit of having savings is that they will earn extra money on top of what you save originally if you put it in an account with a high savings rate (or if you invest it well).
To stay out of debt, having savings can prevent you from needing to put emergencies on credit cards or taking out loans. It really is that important.
Download this cute, free savings tracker here.
#7 Automate Payments
Life happens – we are super busy people (even if it’s just watching Youtube videos for 4 hours straight…just me?). We forget things, we do things late, we mess things up. One of the ways in which we can prevent doing these things with our finances is to automate them. This, therefore, allows for no human error!
Internet banking is the best thing ever. There is no excuse for not organising your finances if you have internet banking – get it if you don’t have it already!
You can easily set up direct debits and standing orders to companies or people, with amounts and dates to go out of your account. There should be a section where you can view all of these so that you can see the total list, which will also help you with your budget.
#8 Have Multiple Income Streams
In line with expanding your means to live the lifestyle that you want, you will find that increasing your income will greatly help this! Not just increasing your income in one way though, but by creating multiple income streams.
You have probably seen the quote floating around that the average millionaire has a minimum of 7 income streams. A millionaires income streams probably look a bit different to mine; most likely things like stocks, rental properties etc.
The best thing about having multiple income streams is that if one disappears, you will be ok (especially if you also have savings as discussed!). You may have seen in previous posts or on social media, that I lost one of my part-time jobs.
I had 2 part-time jobs – one in the evenings that I’d done for years, and one that I do during school hours 3 times a week. I was not expecting at all that I would lose one of these jobs and was very surprised when I lost my evening job. It was through no fault of my own, just down to that part of the business changing.
I panicked for about a second, as I used that money to pay my bills, before remembering that I have the other part-time job that I can use to pay my bills. The relief from having that backup is amazing. You don’t necessarily need to have 7 income streams, but the more the better if you are able to easily maintain them.
If you are interested, my income streams are :
- My part-time job
- Blogging
- Freelance writing
- Dog boarding and other things I do on the side to earn extra money. I would love to include stocks and rental properties to this in the future.
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#9 Have Financial Goals
A huge part of begin able to pay off your debt in the first place is to work towards a goal. Having a goal gives you motivation, keeps you inspired and with your eye on the prize.
I am a big fan of goals and think that everyone should have short term and long term financial goals. As much as we don’t like to admit it, money is important for achieving what you want in life.
Want to travel the world? Want to emigrate to another country? Want to own your own home? These things require money.
They can be as big or small as you like – they are your goals after all. The goals that got you out of debt can keep you out of it as well. I’m not saying to be obsessive over money goals for your whole life, but if you have positive goals that you wish to work towards, this will keep you focused.
#10 Keep An Eye On Your Bank Account
Hopefully, you will have automated your direct debits and various other commitments, but that’s no reason to never check your bank account or bank statements.
There are other transactions which will come out of your account, and keeping an eye on this is very important. It will help protect you from fraud or from other mistakes made from companies.
#11 Be Prepared To Adjust
An important aspect of staying out of debt – and being successful financially – is being able to adjust. Things will happen – some good, some bad, and being able to adjust to them will allow you to stay on track – or create a new track.
What we decide we want to happen in 10 years time, may be dramatically different to what we actually want when that time rolls around. The best that we can do is make the most sensible decisions that we can, and hopefully be ready for anything that life is prepared to throw at us.
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I’m glad to see there are others who also consider keeping an eye on the bank account to be important. I check it at least 3-4 times a month, just to make sure everything’s in order. We do have automatic payments set up and follow a budget (not a strict one, but we’re careful enough with money), and that helps a lot as well.
Glad to hear that it works for you too 🙂 I probably check my account too much haha!
Loved this article and the savings tracker. In 18mths I’ve paid $6,200 off a credit card with just 2mths to go before I’ve paid the whole $7,000. I cannot believe I’ve been able to do this and articles such as yours, keep me perservering each month. I plan to be debt free (excl. mortgage) within 8mths. Then I’ll look at savings and future goals.
Thank you so much Cathy! That is amazing – you have done so well! Congratulations 🙂 it will be the best feeling ever to have it all paid off!
A lot of great habits here. The one thing I need to be more mindful of is being grateful for what I have. I’m so focused on the future and working towards future goals that my life is just flying by! I need to be grateful for and enjoy the here and now.
You aren’t alone – so many people are guilty of that, myself included!
I’ve also found that having my money in cash tends to help me save, believe it or not. Every month when I get paid I put my bill money into one account, and I leave myself with a small allowance to spend on what I like. I’ve found that if I have this allowance in cash, I can physically see how much I have left and I then tend to spend less.
Yes, cash can definitely help people when they are first starting out especially 🙂
Thanks for all of these tips! I am working on paying off student loans and still saving money. It’s tough, but I do have a budget that I mostly stick to. Haha!
No worries – and that’s great! 🙂
Solid list of habits. People have no idea how much having multiple streams of income can help them out. My streams have helped me eliminate all my credit card debt. I’m increasing those streams so that I can get rid of the rest of my debt sooner than later.
That’s amazing – congrats on getting rid of your credit card debt! Sounds like you are doing great – and I’m with you on the multiple income streams!
Most of those items go hand in hand. Keep a budget to see what payments are being made for bills. If everything is automated and you don’t keep track of it then you may be spending money you don’t need to. Sometimes having open credit available to use gets people in trouble. So some people should only buy things in cash so they know they can afford it. Cash is a better visual representation of actually spending money than credit it. Once they understand that lesson, they can switch back to using responsible credit. All good points though, thanks for sharing.
Yep, they definitely all compliment each other 🙂
Hey Francesca,
Really great advice here! It’s surprising to me how many of us break these simple habits daily (myself included). Not all the time, but sometimes.
Thanks for refresher,
Nadalie, It’s All You Boo
NEW POST: How to Automate Your Success with Good Habits
Thanks Nadalie 🙂
Love how you made this so simple! I really think it’s not hard to follow these great tips.
Thanks Courtney!
Great tips. I believe we all need to practice gratitude more often. I am completely guilty of this. It is so easy to focus on what we don’t have instead of being grateful for the wonderful people and things we have in our lives.
Yes, definitely. It is hard in society today, so don’t feel too bad 🙂
This is a great list and it really applies to people you stay out of debt (just like me).
I love to budget for everything food, clothing, grocery, car cost, holiday, you name it.
I think budgeting has really helped me to say out of debt, because I have better control of my finances.
Love that – I’m the same, I love a good budget!
My wife and I are stilling paying off our student loans, but we follow a lot of what you outlined in this post. Creating a budget and building up an emergency fund were some of the first things we did after we decided to take our finances seriously. Having a budget and living below our means helped us pay down $30,000 of debt in a single year. That’s the power of having a plan and long-term goals.
That’s amazing Andreaus – congratulations!
I feel I am one of the lucky ones here, as I have never (besides my mortgage) been in debt by more than a few K, due to being super strict with my money. I have been in positions where my daily food budget was 20p per day, and have always had saving drilled into me. Some great tips on here, but I wish money related subjects would be taught to kids in school – once you are in debt it is such a tricky spiral to escape!
That is super lucky! Thanks for commenting 🙂