To live debt-free is to rid yourself of the emotional baggages of feeling worried, heavy, and sometimes, hopelessness. When you have no more debt, you can focus on building wealth and feel less stressed out about the uncertainties in the future.
As of the end of last year, I finally had a taste of this feeling.
It took A LOT of work, focus, determination and hustle to get there, but goodness gracious, it was so worth it.
If you think you can’t get there, think again, because we can all do it!
You’d be surprise at just how small actions can turn into monumental accomplishment.
Today, I will share with you some actionable tips to live debt-free.
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Living Debt-Free by Going Against the Herd
There’s a famous line by Warren Buffet, “Be fearful when others are greedy, and be greedy when others are fearful.”
When things are going great, we have greater propensity for spending. When everyone else is making purchases, you naturally want to spend too. This is the same for investing and many other things we do.
Just look at the housing market. When more people are out buying a house, you too may have a fear of missing out.
And when the market is going great, no one wants to pay off their mortgage because they can earn a higher profit in the stock market.
While this tendency to follow the herd is part of human behavior, having the ability to think independently can yield higher reward.
And in this case, the KEY to living debt-free!
5 Tips to Live Debt-Free
The biggest debt I ever held was my mortgage. I still remember the day I signed the stockpile of loan documents.
It was both an exciting and frightening moment.
But to be honest, I knew on that very same day that I didn’t want to carry this debt burden for 30 years, the loan term I was approved for.
So I made clearing off this debt as one of the priorities in my financial goals. Here are some actionable steps I took to get there:
1. Know How Much You Spend by Tracking Expenses
Whenever I bring up the value of tracking expenses, I’d always get at least one person who comments, “If I do that, I’ll go crazy!”
I get it, not everyone loves to do tedious task like detailing what they spent. It’s just so much easier to splurge and then forget about it.
But if you could do the hard part and track your spending for six months to one year, you’ll automatically become more mindful about where your money goes.
The thing is, you really don’t need to do this year after year. Once you find your spending pattern, it’s enough to give you a sense of where your money goes.
From there on, you can take control of where to cut or optimize.
2. Aim to Earn More Than You Spend
It’s just mathematically impossible to pay off debt if all your money goes towards spending. You got to earn more than enough to cover your expenses and have some left over for savings.
Savings is really the firepower to pay off debt. When you have excess fund, don’t squander it away by spending it.
Put it towards debt – any little amount counts!
And the best way to do this is if you aim at earning higher. It’s not an easy task of course. Many people can earn more by taking on other side jobs, but the reality is that most people would not do it.
Sometimes, all it takes is to get out of your comfort zone and negotiate for a raise or look for alternative jobs. But once again, not everyone will do it because it’s just easier to settle.
Don’t settle.
While everyone else is spending on frivolous stuff, you can spend it wisely on something else that can yield more like taking a course to learn a new skill. You want to become a writer but not sure how to get published? Learn to self-publish and write an e-book. You have a blog with little audience? Try this Pinterest strategy & marketing course.
There are seriously many ways to increase your income. The question is whether or not you have the energy and drive to do it.
3. Be Mindful About the Types of Debt You Bring In
Some debts can be wealth builder while others can be wealth destroyers. But, both are risky so it’s important to manage every single debt that you bring in.
Depending on whom you ask, you may get varying answers to what are categorized as “good” and “bad” debts. In actuality, I’m not sure if that’s so straightforward.
For example, is mortgage a good debt? Is student loan a bad debt? It’s hard to say. Even credit cards are not necessary bad guys if you don’t carry any balance while earning reward points!
I tend to think of debts in terms of the cost and benefit they provide. If the benefit exceeds the cost, then it’s a debt worth considering.
And when I measure benefits, I don’t mean, “I want this Gucci purse and I’ll pay for it with my credit card. And the benefit is that it’ll make me happy.”
I’m talking about measurable benefits like, “How much can I possibly earn by taking out this personal loan to build my business?”
Being mindful that having a debt would take out a portion of your income is important because that Gucci purse may not just cost $1,000, it could cost double that (thanks to interest!) if you’re not careful.
4. Prioritize Saving and Paying Off Debt Over Spending
What’s a more freeing sensation – the freedom to buy or the freedom to live debt-free?
In my opinion, I sense that some people enjoy the freedom to buy much more than the freedom of having no debt. I think I get it though, it’s just so much more fun to spend.
But on the other side of spending on credit is owing somebody. The risk of having debt can be so much greater than that instant gratification you feel after buying something.
These risks include having bad credit score, paying lots in interest fees, and just overall the crappy feeling of knowing how much debt you have.
Sometimes, having a good savings cushion can feel so much more empowering than having that fancy car.
It’s really how you see it, but if you don’t like having debt, then making savings a priority is a must.
Related: Save Money Without Using a Budget
5. Always Develop Multiple Income Streams
This is an extension to Tip #2. Basically, having extra income stream is a great way to hedge your reliance on one single income.
Today we see that a pandemic can take away jobs faster than you can say Steve.
It’s a terrible position to be in when you’re in desperate need of money while having no income source available.
That’s why developing multiple income streams is more important now than ever. It ensures that your debts will be covered even during bad times.
And thanks to technology (sometimes good, sometimes bad), it’s also easier to develop new income stream more than ever. In just one day, I started this blog!
And before this blog was born, Papa Bear and I worked on a video training project that we posted on SkillShare. This venture is now spitting out “royalties” every month.
I always thought that royalties are things that only celebrities can earn. I obviously had no idea what it means to receive royalties. And as it turns out, anyone can earn royalties nowadays. You can do so by doing training videos or podcasts for example.
Heck, starting this blog actually spit out some income too – albeit not enough to cover all of the cost I put in. However, the growth potential is unlimited and the best part is that I’m picking up a new hobby.
Another income stream I love developing is from our investment portfolio. However, we don’t technically consider this our income source at the moment since we’re reinvesting all of the earnings until we reach financial independence. But it’s still income that we can use if we need it.
Even though we have now developed multiple income streams, they are not enough to support our lifestyle so it’s important to nurture and grow them. It takes work and patience, but anything that’s worth pursuing requires just that!
“I Want to Live Debt-Free”
A lot of our actions are driven by our internal motivation and picture of an ideal self.
Whether you want to be known as someone who is massively successful by having a big house, shiny car and designer purse, or you envision a life of minimalism, your brain will tend to translate these psychological thoughts into actions.
When you declare a goal to live debt-free, you’ll inadvertently look for ways to achieve it (just like how you’re reading this blog post right now).
It’s not necessarily easy when our society places so much emphasis on those who are rich and fabulous. And it may not be easy to turn our heads away from all the glamour and shine either.
But if you can look beyond what’s glamorous and shiny, ignore the herd mentality and focus on your goals, you might find that living debt-free is truly within your reach. And, it’s the most freeing feeling EVER.
PIN it to believe it
What are some of the debts you have that you want to get rid of right now? And what are some actionable steps you are taking to achieve this?
Having an extra income source most definitely is key. We have really learned a lot from this pandemic.
I think tracking expenses is half the battle. So many times we forget to note what we bought.
It is so freeing to live outside of debt and it stewarding our finances well.
This multiple income streams is a new concept to me but the covid thing really has and aiming for that!
It’s so important to diversify your income source but it takes time to develop. This is certainly a good time to focus on it.
Simple and profound! Much needed during these times.
Thank you for the nice feedback!
Great post!
Thanks!