The key to being financially free is to owe no one. Is that even possible? If you ask most people, they will tell you, “No way!” But they are mistaken. It IS possible to live debt free. It is possible, but not easy. The path to financial freedom takes a commitment. It is all about your choices. If you truly choose to live debt free, you can do it. The first step is to choose financial freedom. After that, every choice you make about spending money can take you towards your goal.
Most people start out their adult lives with debt. Some folks have student loans, some don’t. But who among us didn’t borrow money for the first new car? Dealerships have such great deals, right? Zero down, 1.9% or 0.9% interest, how could we refuse such a deal? After all, it’s only $400 a month, right? The payment is less if it is financed for longer. So what if it takes 6 years to pay it off?
Then there is the great American dream – your home! Nobody pays cash for a house, right? So you take out a mortgage. And since your home is your single, greatest asset, you borrow the most you can afford to borrow and take 30 years to pay it off. Doesn’t everybody? Isn’t your home your greatest investment? Ask someone who bought a home at the top of the market in the summer of 2008. Many people found their “great” investment cost them a pretty penny. Many people even went into bankruptcy because of this supposed “great” investment.
And then there are credit cards! How many offers does the average person get in the mail (or email) for credit cards? Many of the offers are for pre-approved, no annual fee, and low or no interest for the first year. That’s where the credit card companies get folks. It is so easy to charge a little this month for a new outfit, and a little more next month for a vacation, and then some more next month take a group friends out to dinner one night. You deserve it, too, don’t you? And that is how it happens. One day at a time, one charge at a time.
SO, how do you become financially free? How do you become debt free? You start by making the decision to live debt free. How do you do it when you owe money on a house note, a car note and three or four (or five or ten) credit cards?
1.) Like any journey, the first step is the hardest. You have to quit borrowing and start living within your means. That means you have to spend less than you earn. If you don’t have money to go out to eat, you stay at home and eat. If you don’t have the cash to pay for a movie, you stay home and watch TV (not cable, either!) Better yet, read a book. You might reacquaint yourself with the joy of going to the public library and checking out books and movies for free. You might invite friends over to play cards or a board game or charades. Entertainment does not have to cost money.
2.) This is probably the most important concept in becoming debt free – Learn to differentiate between needs and wants. At the end of the day, most folks have very few needs. Their wants, on the other hand, will keep most people in debt until the day they die if they are not careful. Don’t spend your spare time at the mall. Don’t spend a lot of time shopping online. And don’t watch the home shopping channel! Have a budget and live within it. When you see something you are tempted to buy, ask yourself, “Do I need this?” If you are honest with yourself, the answer is usually, “No, I just want it”. If you want financial freedom, you cannot indulge yourself as you once did. However, you can and you should allow yourself to have some fun. Otherwise, you will feel deprived and probably have a harder time staying on track.
3.) Next, assess your debt. Look at who you owe and how much you owe. Pay the minimum on all your credit cards but one. That one credit card, the credit card that has the lowest balance – pay double the minimum payment. When that credit card is paid off, add the amount you paid on that account to the payment you are already making on the card with the next lowest balance. And so on until you have no credit card debt.
4.) After paying off credit card debt, if you haven’t already done so, start a savings account. You can begin saving by depositing into a savings account the same amount of money you previously paid to credit card companies. Once you establish a savings plan, the rest will come easy. When you get a raise or a bonus, increase the amount you put in savings. If you get another raise or bonus, make additional principal payments on your mortgage. When you want to go on vacation, create a vacation fund and pay cash for the vacation. When you pay off your car, take the amount you had been paying on your car note and put it in a savings account so you can pay cash for the next car. Now when you borrow money, it is a conscious choice, a financial decision, not a necessity brought on because you can’t afford to pay for what you need out of current income.
Financial freedom is possible! Learn to make good financial choices, but don’t forget allow yourself to have some fun, too. Always remember – you have a choice. Being in debt is a choice. So is being financially free.