If you want to experience financial independence or live the life of your dreams, you are going to have to avoid going into debt. Put simply, when you are in debt, you are working for someone else… and, as a result, you can never reach your goal of financial independence… The key, then, is to avoid debt altogether.
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Avoiding debt can be tough. Advertisers are good at getting us to spend our money, even when we don’t have any. Add in peer pressure and our personal beliefs about wealth and most of us end up in debt but there is hope. This post outlines ways to avoid debt so that you can make sure your money is working for you and not working against you.
#1. Live Within Your Means
The most important way…to avoid debt is to live within your means. This means that if you don’t have the money for something, then you can’t afford it and shouldn’t buy it. This is harder than it seems since our society has become an instant gratification one. Everyone needs to have things now and can’t put off buying things. Add to this advertisers who are able to tap into our emotions to get us to buy and it’s no wonder why so many of us are in debt.
Just how do advertisers get us to spend our money? They know that the emotional side of our brain works faster than the rational side so they tap into our emotions and we buy. When you have buyer’s remorse a few days or weeks later, the rational side of your brain has caught up and you realize you don’t need or want the item. Unfortunately, it is too late as we have already bought the item. You can beat advertisers at this game, however.
Here are a few games I like to play to help me overcome the urge of buying things in the moment:
- The Waiting Game: When you have the urge to buy something, take note of it and wait a week or so to see if you still want it. In many cases you will find that you don’t want it any longer.
- The Pause Game: Take a few minutes instead of a week. Give yourself just a few minutes to think things through. This doesn’t work as well as the waiting game, but will help to curb some of your spending.
- The Stranger Game: With this game, imagine someone was standing in front of you. In one hand is the item you want. In their other hand is the cash that the item costs. Which would you rather have, the item or the cash? If you choose the cash or even hesitate, this is your sign not to buy the item.
- The Right Now Game: This game has you ask yourself a question. If you could use the item right this moment, would you? It works best for clothing in that would you wear this item right now? If you answer no, then odds are you don’t need it and shouldn’t buy it.
The key ingredient in all of these games is to get you to stop and think. The more you can do this, the less money you will spend on a whim.
What if you do still want the item? If you don’t have the money to buy it right now, then you know you need to save up for it. It might not seem fun to put off buying things until you have the money, but it will make you appreciate the things you have so much more.
#2. Set Up A Budget
By analyzing your spending and knowing how much you have to spend will go a long way in helping you to avoid debt. There are three ways for you to track your spending.
- Excel Spreadsheets: This is a manual process, but is great for those that like the hands-on approach. You can check out this post for 10 free spreadsheets to download.
- Tiller: Similar to excel spreadsheets, Tiller works off of a Google Sheet. It is still spreadsheet based, but it automates most of the process. You can completely customize the sheet for your liking and still automate 99% of the budgeting. You can learn more here.
- Personal Capital: If you want to fully automate your budgeting, there is Personal Capital. This free app will allow you to set up specific categories to track and will update automatically for you every day. You can learn more here.
Take some time to figure out which solution is best for you and your needs.
I know that some of you might see the word budget and get nervous. A budget isn’t restricting your spending. It is helping you to spend your money in a way that makes you happiest.
Right now, you are probably just spending money on things thinking they bring you happiness. In reality they don’t, which is why you are spending money on so many random things. By budgeting, you learn what you value and spend your money there. You enjoy life now and still make progress towards reaching your goals.
…If you really don’t want to budget then:
- sit down with a pen and paper and make two columns.
- In the first column, write down all of your expenses that are absolutely necessary, such as food and shelter costs.
- In the second column, write down all of your other expenses, such as entertainment and gadgets.
Start to track your spending in your non-necessary column as these expenses are what tend to get us into the most trouble.
#3. Be Happy
If you want to know how to avoid debt, the answer is to be happy. If you are depressed or bored, odds are you are going to frivolously spend money. Take me for example. After I graduated college, I got depressed and started spending money to make me happy. Buying things provided me a temporary high. Unfortunately, it wore off quickly, forcing me to buy more and more things. It wasn’t until I understood myself and began to take better care of my emotions that I was able to overcome my bad spending habits.
- You need to take a little bit of time and figure out what makes you happiest…
- You should also look over your budget to help you remember and see how you have spent your money. When reviewing your expenses, think about which ones made you happy, not just at the time when you bought the item, but now too.
You want to find the things to spend money on that will bring long term happiness to you.
#4. Don’t Buy Love
This way for how to avoid debt is related to the above point about being happy. You need to love yourself and value yourself. There are some people that think they need to buy things for others in order to be loved. Any person worth loving doesn’t need you to buy them things for them to love you. They will love you for just being you…
Learn to love yourself because you are special and understand that others will love you for this reason as well. It may take some time for you to raise your self esteem, but it can be done…
#5. Don’t Compare Yourself To Others
I’m sure you’ve heard the saying, “don’t keep up with the Joneses”. That statement is 100% accurate. Trying to keep up with others is pointless. Learn to love what you have and as I mentioned above, live within your means.
In fact, the Joneses who have all of that stuff, are most likely in mountains of debt themselves. Don’t believe me? I encourage you to read The Millionaire Next Door. It will open your eyes as to how the majority of the rich live. You won’t spot the typical millionaire. He or she will look like just an average person. The person you see that looks like a millionaire is probably farther away from millionaire status than you when you take into account all of their debt.
Don’t let people tell you what to buy, how to live and where to spend your money. By listening to others, you are guaranteed to get yourself into debt. Make these decisions for yourself.
#6. Learn That Credit Cards Don’t Make You An Adult
After you graduate and enter the workforce full time you’re a golden child to financial institutions. You’re credit score is most likely good and you have a new found income stream, both are stellar characteristics in the eyes of a lender.
- Soon enough you’ll be receiving credit card offers in the mail with bonus rewards points, travel perks and cash back offers. Don’t accept them all, or else you will quickly find yourself in a mountain of debt.
- Decide which offer is most appealing, accept it and throw away all the rest. Having several credit cards doesn’t make you financially responsible. In fact just the opposite is true.
Being a responsible adult means knowing your limitations and spending within your means. It’s not about having the most credit cards or the highest limits possible so, if you choose to use credit cards, limit the number of cards and use it wisely.
#7. Use Cash Instead Of Credit Cards
On the flip side of the point above, paying with credit cards may be very convenient, but it’s the easiest way to rack up debt. This is how people end up maxing out their credit card every month. When paying with cash you will only spend what you have. This will save you from having to pay interest on your credit cards if you don’t pay the balance in full by the end of the month.
To avoid debt, carry your credit card only for larger purchases that you want the added protection that you get when buying on credit. Otherwise, use cash for your purchases.
#8. Use Your Credit Card Like A Debit Card
The main difference between a credit card and a debit card is that with a credit card, you typically have 30 days until you have to make a payment. With a debit card, the money you spend is taken from your checking account right away. By using a debit card, you avoid debt.
If you want to use your credit card to earn cash back, but want to avoid getting into debt, then the simple solution is Debitize. This free service lets you use your credit card and earn the cash back or rewards, but will see your purchases and move the money from your checking account to a Debitize account. When your bill is due, Debitize will pay your bill for you and will pay it off in full! By using them, you avoid debt and earn the rewards you want! You can click here to learn more about Debitize.
The overwhelming theme for how to avoid debt is to love yourself, learn to not compare yourself with others and to stay away from credit cards. If you can learn to do these things, you will be well on your way to avoiding debt and, the sooner you start avoiding debt, the sooner you can start growing your wealth and getting ahead financially.
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