HOW TO STAY OUT OF DEBT AND REMAIN DEBT FREE

Dieticians estimate that 95% of people who lose weight during a diet will put the weight back on once they stop the diet. Since money, like weight loss, is also governed by our behaviour we need to make sure that we change our financial behaviour and habits so that we don’t create an environment where we can re-create debt. Here are a few points to help us remain debt free. In no particular order:

1. Remain inside a budget

The budget is the cornerstone of our financial wellness. Don’t neglect it and use a budget system that is preventative, not reactive. A preventative system prevents us from spending and a reactive system tells us what we have already spent. Thus, a reactive budget system is far less useful. Software-based systems (as much as they are convenient) are reactive because they only have the power to provide us with a historical account of what we have already spent. The manual, ‘Envelope System’, works with cash and prevents us from spending in the following ways:
 
a. The system is very visual and a great way to teach kids about money. The money in the envelope is the available balance for a specific expense category.
 
b. When the envelope is empty, we are unable to use credit to spend more on that specific expense category.
 
c. It puts the emotional value back into money. Spending $100 in cash feels a lot different to spending $100 on a debit or credit card.

2. Pay yourself first

In other words, taking care of our future and the important things first, before anything or anyone else is paid, is our top priority. If we wait to invest until we have money left over at the end of the month we will never invest, that is why we pay ourselves first. To have the best results we need to automate our systems. See above in the How to Pay off your Debt section. Automated deductions for investments and expenses, done immediately before or after our income gets deposited, ensures that it gets done. The less we have to do manually the better.

3. Avoid spending opportunities

If we like to walk around the mall, browse amazon.ca or spend time with people who live beyond their means, consider changing the habit or maybe even the friends. It is Aristotle that said “We are what we repeatedly do. Excellence then is not an act, but a habit”.

4. Education

See above in the How to Pay off your Debt section. Here is a list of resources to read or listen to. Become an expert about finances and start to teach others.

5. Don’t do it alone

Overcome the shame and fear so often associated with finances. Work with someone else to establish a great, workable and realistic budget. We need to get on the same page with our home teams about our finances; it will make a difference in our lives. Have a weekly family meeting and make your finances an important point on the agenda so that everyone is on the same page about it. See the notes above on accountability.

6. Set goals

Set personal & financial goals, write them, display them for yourself and review them daily. This will provide purpose and direction and keep you on track for your future. If you do this faithfully, you will see your whole life change, not just your finances.

7. Have a rainy-day fund

Don’t depend on credit to plan or pay for large, unforeseen expenses. Rather, have a rainy-day fund of the about 3 to 6 month’s of expenses available in liquid form, on short notice, in case of emergencies. This is a sure way to prevent you from getting into debt.

8. Be a saver

Watching your savings grow is intoxicating and very motivating. This is probably the best antidote against creating debt. The problem with having debt is that it keeps our focus on our problems. Debt makes us lose sight and vision for our future and what life can be without debt. Having savings and watching our money grow makes us jealous and protective of what we have worked so hard for.

 
This is not an exhaustive list of items to do to remain debt free, but this will be able to help most people.
 
Feel free to give us feedback below. We would love to hear from you about your victories and struggles in the debt-free process.
 
This was Part Three of our three-part “Dealing with Debt” series.
Be sure to read Part One, Why We Make Debt and Part Two, How to pay off debt and become debt free.
 
You can also find the specifics of our debt snowball plan here.
 
For Disclaimers please see “Disclaimers” and other pages in the Debt Snowball Plan file.

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