The majority of the world’s workforce feels shackled by debt burdens, and whether your debts are large and unbearable or seemingly manageable, there’s no doubt you often find yourself longing for a completely debt-free life. Unfortunately, even if your monthly debt repayment total only consumes ten percent of your income, this ten percent could otherwise be used to help you meet your savings goal, enhancing your financial stability in the long-term and ultimately ensuring you can lead a better quality of life.
However, in today’s world, living debt-free often sounds like a far-off unrealistic dream. Fortunately, more often than not, all it really takes is a bit of self-discipline and the adoption of a few healthy spending habits. So, to help you get started, we have rounded up a few expert tips to help you achieve a debt-free status and begin leading a more financially stable lifestyle.
Adopt The 50/30/20 Rule
Elizabeth Warren, a bankruptcy expert, coined the 50/30/20 rule, and the concept has helped countless individuals pull themselves out of debt in a relatively short space of time. The idea suggests that 50% of your income should be devoted to all the things you need, such as your property rental or mortgage repayment, your grocery needs, and anything else that is blatantly an essential cost for you to survive. After that, 30% of your income should be free for the things you want, such as entertainment costs and all those other little extras that make life worth living. However, 20% of your income should be set aside for your savings.
On the other hand, you can also consider switching things up to pay debts off faster by devoting only 20% to your wants and freeing up 30% of your income for savings and debt repayments. In the beginning, most professionals will find it is best to use at least 20% for debts and save a mere 10% of their income until they can enjoy a debt-free life in which savings can be optimized.
Save With Tax-Free Accounts
Gone are the days when the only way to save was to hoard your cold hard cash under your bed or in a built-in safe. What’s more, a standard savings account is also not the best idea in the long-term as these accounts can be subject to tax once you have built up a pretty handsome amount. Instead of opting for the standard savings options, it is wise to search for account options that will give you the absolute most, such as tax-free savings accounts and high-yield savings accounts or investments. If you aren’t too sure which is the best option for you, this Wealthsimple’s TFSA guide will help you understand all the benefits of tax-free savings.
When choosing the correct savings account, you should also consider aspects such as notice periods, interest rates, and monthly charges. Everyone has varied savings needs, so you should also opt for an account that will let you save with flexibility.
Pay Credit Cards In Full Monthly
Credit cards often have a bad reputation for getting individuals into unbearable debt burdens. However, if used correctly, a credit card can help you save while offering quite a few unique benefits, such as points or discounts. Instead of using your credit card the usual way, you should only use an amount to pay off in full monthly. This will eliminate the high interest and boost your credit score at the same time, allowing you to take advantage of those unique benefits you may not have had access to before.
By using your credit card only for emergencies and avoiding the spending mentality that this credit can be rotated or maxed out and paid off long-term, paying your credit card in full each month is the best option to avoid debt. However, if you are already in debt with your credit card, you should avoid using it and pay an amount that is higher than the monthly required installment to minimize your interest total.
Downgrade Your Lifestyle
One of the most common reasons we find ourselves with a crippling debt burden is the unfortunate truth that we live outside of our means. While many millennials stand by the fact that the ever-rising cost of living makes it near impossible to live within one’s means, there are several ways to downgrade your lifestyle to accommodate savings and the ability to eliminate debts. Whether finding a roommate or moving to a smaller, more affordable apartment, ensuring that your basic costs to survive do not exceed your income is vital. Even curbing a few bad habits can enhance your ability to save more.
The next problem is that most professionals would agree, the more you earn, the more you spend. This subconscious action is true more often than not as a promotion at work, or an extra income quickly has us overlooking our budget. We assume we can enhance our lifestyle and spend more instead of spending the extra wisely. If you find yourself in a position where you are earning more, you should devote the additional funds towards paying off debts and saving more instead of enhancing your lifestyle.
Every Cent Really Does Count
Another common saving and spending misconception is that small costs don’t add up as they won’t amount to much in the near future. However, whether you are contemplating spending a little extra this month on entertainment or other wants, every cent counts. A minor overspend can quickly spiral into a debt burden as using credit will result in interest that means your small spending is actually quite significant.
At the same time, many people avoid saving those few extra dollars as it may not seem like such a big deal. However, if you opt for the correct savings account, even a few dollars will grow eventually. What’s more, even if you find yourself in a situation where you can save only half of your regular amount, you should still devote the small funds to savings as it will make a difference in the long run. This discipline of saving every extra cent will ensure your savings are constantly growing.