Buying your first home, saving up for your college, planning for retirement and everything in between, there are several milestones you set for yourself to make your ends meet. But, one thing that can ruin it all is falling into a debt pit. Moreover, considering the fact that we wish to live our lives to the fullest, we often end up taking too much debt to satiate our never-ending needs.
And, where does it leave us? In an inevitable debt trap. That being said, the art of going debt-free isn’t something that you can master in a free course, but it’s taking over certain habits and making sure you stick to them no matter what. You can also take up a credit counselling service to go debt-free.
Regardless, here are the three secrets that can truly help you stay away from unnecessary debt. Read on to explore more.
Creating A Budget And Sticking To It
Touche, right? But, it actually helps. Creating a budget gives you an idea of how much cash you have to spend. You can make your own guide, jot down the digits in a diary or simply open a spreadsheet and enter your calculations there. It’s that simple.
The challenging part, however, is sticking to it. Yes, buying new things, especially if they are available in a great deal, can be tempting. But, you can not fall for it every time. Allot a part of your income for debt consolidation, paying energy bills, rent, college fees and savings. Relocate and cut down those expenses that aren’t just worth it.
Saving 15% Of Your Income
While it’s often said that you should save at least 20% of your income, things can get challenging if you have ongoing debts to get rid of. So, instead of making things hard for you, set your savings contribution to up to 15%. The extra 5% can go for paying off debts easily and faster.
And, if you earn a little less than what you think you deserve, save an even smaller amount. The point here is that a small contribution is always greater than no contribution. So, instead of cribbing that you have no money to save, start saving, even if it’s the least possible amount. Besides this, to ensure consistency every month, set automatic transfers where a portion of your funds will be automatically deducted to a savings account.
Leave Your Savings Alone
Perhaps your next major goal is to buy a home, but you also want to go on an international trip. The right decision here would be to set your long-term and short-term goals and dedicate the saving portion to both. In short, if you are planning to save about 15% of your income, put 10% for long-term goals and the remaining 5% for short-term goals.
Regardless of your needs and desires, resist dipping into your savings. While having that extra bundle of cash in a bank account can be highly tempting, it is not always the best choice. So, unless you have an emergency like you lost your job, resist going for your savings.
And, if you just can’t help it, invest the savings in options that offer guaranteed returns with lesser risks. This way, you would have to go through extra efforts to encash your investments, thus, keeping your savings safe and secure.
The Takeaway
Honestly speaking, living your life without falling into a debt trap is quite liberating. You wouldn’t have to worry about your monthly installments or paying those extra bucks for the interest rates. So, to go debt-free, make a budget, stick to it, save about 15% of your income and keep your savings safe.