Tips to Lead a Debt-free Life

Tip # 1 - Make a personal budget that a kid can understand

When we talk about budget, an image that immediately comes to our mind is of numerous cost accountants and financial experts doing a series of number crunching analysis over a stack of papers. However, your personal budget need not be so complicated. If you like computers and can get around easily with Microsoft Excel, then this is more than enough to get your personal budget going. If you do not have a computer at home, then get a notebook or a folder and start doing your budget. Make the budget as simple as you can. Put yourself in the shoes of a kid and think how a kid would budget his finances. The only mathematics that you need to know are the basics - Addition, Subtraction, Multiplication & Division.

The purpose of working out your own budget is to understand where your money is going and how you can pay your debts at the earliest possible time.

Tip # 2 - Make a note of all the debts and pay them off

Whether it is the $50 you borrowed from your wife or the $500 you took from your brother, or the $200 that you gave your son as education loan, write down every debt that you have and repayment of all your debts into your personal financial plan. Set aside a specific portion of your monthly income only for this purpose. The percentage will differ depending on the amount of debt that you carry. The most common mistake that most of us do is to wait for a lump sum amount to flow in to pay off all the debts. But the solution is not in the lump sum amount but the solution is to just start. Whether it is $5, $10 or $15, just start. Whatever the amount, however meager it is, begin and begin today.

Tip # 3 - Throw all the credit cards out of your wallet

Remember, if you buy on credit you will have to deal with the unnecessary stress of paying off the bill before the interest starts kicking in. If you do not pay the entire amount before the payment due date, then the original price at which you could have bought the product starts increasing and it increases almost 4 folds in a year. The solution is to buy only if you have the hard cash.

Tip # 4 - Do not borrow or reduce borrowing

Unless and until it is absolutely necessary and there is no other way out, do not borrow money. Do not borrow money even if it is interest free or from a relative or friend. Borrowing money unnecessarily adds to the financial burden and unwanted mental stress and trauma till the time the debt is repaid. The fact that the money needs to be paid to someone deprives of your ability to spend on things that are more important than repaying debts. In some cases it can also prove to have a negative effect on the relationships that you have.

Tip # 5 - Try to avoid shopping without a list

Most of us would be aware of shopping for the monthly provisions or grocery with a list prepared well in advance keeping in mind only those items which we have ran out of stock in the kitchen or otherwise. However, there is more advantage than disadvantage in extending this practice to all kinds of shopping. Though it is very easy to prepare a shopping list, what is tough is to stick to it. If you can stick to the list that you have in hand, you will soon realize that you have all that you want and still have some more money left over for contingencies.

Tip # 6 - Set limits for yourselves

It is but human to crave for more, even if it is not absolutely necessary. You might want to have lots of clothes, an expensive perfume, give your kids that console game that has just been released, etc. While it is not harmful in spending in items like these once in a while, it is very important to set limits for yourselves and for the family as a whole. The simplest way to do this is to set specific financial limits for each family member depending upon age and profession.

Tip # 7 - Plan well in advance

It is very very useful and helpful to calculate the expenditure for the following month at least a week before the actual month starts. Include all the expenses that you will have to incur in the following month however small or big they might be. General expenditure would be the rent or the loan EMI or the electricity bill or the school fees, general provisions for the house etc. Once you have calculated all the expenses withdraw the amount for all the expenses once and do not withdraw anymore.

Tip # 8 - Save Money

It is very important for all of us to save a specific portion of our monthly incomes aside. This is not to accumulate wealth but to help us in case of emergencies. The future is uncertain and we do not know what could happen to us tomorrow. Throughout testing times the small money that we had set aside every month might get us through without us knowing it. As the old saying goes, it is the small drops of water that maketh the ocean!

Tip # 9 - Treat interest disgustingly

Interest is a disgusting disease that makes slaves out of people and makes them sick for life! Be conscious of the ill effects that interest can have on you and your family and consciously avoid it. Avoid interest at all costs no matter how little. Encourage your family to do the same.

Tip # 10 - Stop comparing

Not all people have all that they want. To put this in perfect light, the boy with a straight hair wants curly hair, the boy with the curly hair wants his hair to be spiked and the bald man wants some hair - be it straight or curly. This cycle of craving for the "nought" is never ending. The human psyche is such that it never stops craving. Resist the urge to keep up with such pressures and be content in what you have.