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The Road to a Debt-Free Life

A debt-free pathway to financial bliss may seem an unrealistic dream if you are currently swimming in credit card, loan and mortgage debt, but there are some very basic steps you can take to get yourself into a great lifestyle and to secure your finances permanently. The following suggestions are all-encompassing, but you can pick and choose the strategies that fit your current situation.

Nothing Happens Without a Budget

If you do not currently have a budget, you have no plan for managing your finances. You need to have an accurate picture of your total income and total expenses, on a monthly basis, before you begin to develop your strategy for eliminating debt and beginning to save and invest for your future. Once you have listed all of your normal monthly expenses, you need to see if you are engaging in deficit spending, that is, using credit to purchase goods and services that you really don’t have the cash to purchase. If this is the case, it has to stop now. You will need to spend some time in self-sacrifice and self-control, doing without as much as you possibly can, so that as much as possible can be dumped onto your credit debt. This is a painful lifestyle for a while, but the rewards will be greater than you can imagine. Attack one credit debt at a time, pouring as much as possible on it until paid off. Reward yourself with some small pleasure as each one is paid in full. Tell your best friend or closest relative what you are doing so that you have a support system when temptation beckons. Once you are rid of that bad debt, it is time to develop a new budget.

You Savings and Investment Budget

Now that you are free of “bad” debt, it is time to analyze your income and expenses again. You are now ready to develop some long-term goals which include savings and investment so that you have a future of financial bliss and have secured your finances. This new budget will allow for some luxury and entertainment expenses, because you have done without for a long time. But, in addition, you will now plan for a regular amount to be paid to yourself in the form of savings and investments. Begin with a regular savings account in a bank. As this grows, you can then transfer that savings to higher interest-bearing accounts, such as money-market savings or CD’s. At the same time, you may want to look at your mortgage and how you can begin to pay down that debt faster. A mortgage payment includes principle and interest. In the first 15 years of a mortgage, interest makes up the majority of the payment. By doubling the principle amount of your mortgage payment, you can cut the payoff time significantly and save yourself thousands of dollars in interest over the long term. Consider making double payments in a month if your budget will allow. Once you have a comfortable amount in safe savings, you may want to consider some long-term investments that will accumulate money for retirement years. These include 401K’s or annuities, mutual and bond funds, and a diverse portfolio in the stock market. If you are new to the stock market, do not try to play with the “big boys.” Research those companies that will provide not only dividend income but long-term growth. You will want to be in these for the long haul, not for the quick buck. The risky investments can bring big gains, but more often than not, they bring big losses, especially to the novice.