Want to become debt-free this year?
Simple tips that help you live debt free
Getting into debt can be incredibly stressful. Constantly worrying about paying your debt while still having enough money to stay afloat can make you feel lost like you’re running in a never-ending maze. There are ways to stay out of debt, though. You can avoid these 15 money mistakes that are costing you thousands, learn 5 steps to avoid the credit card trap and even learn what rich people never ever buy to help you save a couple of bucks. You can also pick up these smart habits to help you live debt-free.
Having a plan means having a purpose. “[People] that lead healthy financial lives more often than not have clear financial goals and are actively working towards them,” says Yoni Dayan, chief editor of Money Under 30; he adds that “if you have a good ‘why’ to save, the ‘how’ will come much more naturally.”
Wait to buy
“If you have trouble with impulse spending, waiting a few days is a great habit,” Joe Udo of blog Retire By 40 explains. “You may find a lower price or simply realise that you don’t need it after all.” While this is particularly helpful when it comes to big-ticket items, like a new TV or even a new car, it can also apply to everyday buys that can add up over time.
Turn off auto-pay
Financial planner, Shannah Compton Game, recommends removing all auto-pay or auto-fill options on sites where you shop frequently. This forces you to “think about how much money you’re spending before you hit the ‘buy now’ button,” she says
Pay as you go
Surprise parties are great. Surprise bills are not. To avoid owing at the end of the month, Erica Gellerman, creator of The Worth Project, suggests treating your credit card like a debit card. “For example, if I swipe on lunch for $10 and gas for $40 I’ll use the credit card app on my phone that night to transfer $50 from my checking account,” she explains. “That way I’m not spending money that I don’t have.”
Pre-pay your credit card
This tip from Compton Game is pure genius: “Pre-pay your credit card for however much you’ve budgeted for the week for your expenses,” she advises. It will help keep your bank balance in check and stop you from spending money you don’t have.
Don't carry a balance
There’s a two-word reason: interest payments. Udo says that when he uses credit cards, “I always make sure to pay the bill in full every month. I get all the convenience without having to pay interest to the bank.” If you can’t pay it all, a good rule of thumb is to never carry more than 30 per cent of your credit limit to the next month. Bonus: paying off your balance every month is a good way to boost your credit rating.
Another thing to consider if you find yourself holding a hefty credit card bill when the 31st rolls around, is to start paying with cash. Udo explains that not only does this make sure you’re living within your means but “the physical action of handing over cash to someone else is a lot more difficult than swiping a card.”
Automate your savings
Remembering to set aside money each month is tough. Fortunately, financial planner, Sophia Bera, has a sneaky solution. “Automate your savings and retirement contributions so you don’t have to think about it yet you’re consistently making progress on your goals.”
Find inexpensive alternatives
More free time often involves spending more money, from brunch to happy hour to window shopping (which turns into actual shopping). “Nothing is wrong with these activities, but when I was doing them out of habit, I realised that so much of my spending was on things that I didn’t really care that much about,” Gellerman says. Now she keeps a list of budget-friendly activities to swap out for her pricier pastimes, like inviting friends over or going on a walk.
Have a good attitude
As new age-y as it may sound, the law of attraction applies to money, too. The better your attitude is towards your finances, the better your finances will be. “Come at money from a place of enjoyment and abundance instead of fear or scarcity,” Taylor Simpson, founder of The Money Mindset Masterclass says. “Know and believe money comes to you easily – when you feel this, you’ll live it.” One way to do that? Say “thank you” when you spend money to start seeing it as something that comes and goes effortlessly.
Create an emergency fund
According to a recent survey by Mozo, only 25 per cent of Australians have the savings to stay afloat when faced with unforeseen circumstances. To prevent going into debt, however, you should have enough set aside that you could cover a minimum of three to six months worth of living expenses in case something drastic should happen.
Don't boost your budget
No matter what. That means even if you get a raise, start a side gig or even win the lottery – stay firm to your original budget. Better yet, funnel all that extra income directly into your savings or retirement fund, so you won’t even feel like you’re missing anything.
Skip the take-away coffees
Yes, you’ve heard it before but it bears repeating: Time, in partnership with NextAdvisor, broke down exactly how much you’d save if you swapped your twice-daily coffee habit with home-brewed coffee – and it’s a lot. Assuming you spend $3.95 on your cappuccino, twice a day, you could be losing over $2,800.00 per year – compared to spending just $100 per year with home-brewed coffee. Something to keep in mind is that number could be more or less, depending on your order. If you have a more expensive coffee habit, prepare to spend more per year.
Track your progress
If you have a financial goal in mind, say to save up an emergency fund by the end of the year, track your progress to see how you’re doing. Seeing that number increase each time you look can give you the motivation to keep your smart spending habits on track. Or, if you don’t see it increase as much as you’d like, you can adjust your spending habits to get back on track. Either way, tracking how much you save will help you figure out if your saving habits are efficient or not.
It’s tempting to grab something we want or need as soon as we see it, but smart spenders know to compare prices and see where to get the best deal. They utilise fliers, apps, and websites to compare prices. For instance, MotorMouth, which makes it easy to compare the price of fuel at one servo with the others, highlighting the cheaper and more expensive service stations right across the region. Comparing prices can cut your spending and allow you to put extra money aside.
This article originally appeared on Reader's Digest.