First Person: Daily Habits That Keep Me Out of Debt
http://finance.yahoo.com/news/First-Person-Daily-Habits-ac-3030578433.html?x=0
People generally get into debt because of the “compounded disinterest” they have in their finances over the course of many years. To get out of debt, I had to take an interest in my finances and know what was coming in and out. I had to increase my income to maintain my lifestyle, and I had to get radical about paying off debt.
My goal was to be out of debt by age 30. I succeeded by asking myself five key questions every day about my spending habits and finances. Some people talk about “good debt, bad debt,” but I’m of the school of thought that all debt is bad debt. I don’t like Dave Ramsey’s idea of living on just beans and rice (literally) or buying a beat-up car. But I do believe that living debt-free is psychologically liberating. Here are the five questions I asked myself to get out of debt for good:
Could I do this myself?
Before paying someone else to do something for me, I’d consider whether I could do it myself. Everyone has down time. If you have a Type A personality, consider washing your car as your meditation break. Mow the lawn for exercise.
Am I putting aside money for a car and a house?
Almost everyone wants their own car and house. If you already have a mortgage, think about adding extra payments to your monthly budget. If you don’t own a home, put aside a 20 percent down payment on a house. If it’s your first house, you may be able to use money from a Roth IRA. Even when you are out of debt, you will always need to save for a car and possibly a new home.
Could I do something else to make money?
Sometimes your debt is stagnant because you just aren’t making enough money. Every day, explore the possibilities for increasing your income. Look at passive income streams as well, such as receiving dividends (company profit that’s given to shareholders) and residuals from work. I doubled my income within months by writing daily goals to accomplish more work as a freelance writer.
Do I already have this item?
Before buying something new, consider whether you already own it or something similar. Many times I’ve gone shopping for a tablecloth or window covering, when what I really wanted was in a drawer or closet at home. Shop at your own house before you go to the mall.
Can I pay cash?
If you can’t pay cash and need to use credit, that’s a red flag. Researchers say people spend less money when they use cash instead of plastic. One of the worst signs of financial trouble: using credit to buy groceries. To become wealthy and stay out of debt, you have to keep more than you make. Work with cash only until you can stick to a budget.
When I started my plan to get out of debt by 30, I was in my 20s and had a lot of debts. The worst were car and college loans. It felt wonderful to write the last check to the loan repayment center. Today, I’m working on paying off my mortgage early with my financial partner (husband).