How to be Debt Free, Live Within Your Means and be Happy

It’s a great feeling, knowing that you don’t owe anyone anything, and that whatever you have is yours!

One thing debt does is to deprive you of choice, choice gives you freedom to do whatever you want (within your financial limits of course). So debt deprives you of your freedom! And if you don’t have freedom you are a prisoner, so debt keeps you a prisoner – I didn’t want that, and I’m sure no one else does either.

I managed to get out of debt, and stay out of debt, by making a plan, a financial plan (sometimes called a budget – but don’t let that put you off).

First, I looked at all my expenses, what was I paying for each week, month, year; gas, electric, telephone, water, clothes, food, car, holidays, and so on, the list goes on. But the trick is to identify every single item that costs you money.

Keeping a record helped, but only for the day to day costs that happened without noticing sometimes, the odd paper, the odd cup of tea, etc. then you need the regular monthly items, direct debits and so on, the ad hoc yearly payment, insurance etc. I checked out bank statements, cheque book stubs for full details.

What I was after was a monthly figure for each item, or a monthly equivalent if I paid yearly, so that I had a monthly amount either that was due to be paid and was what I needed to cover bigger bills.

Then I listed my debts, in descending order so that the highest interest ones would be paid first, so I listed the minimum payment for each and added this to my expenses total. At the time I had a personal loan and three different credit cards with total debt of around £5,000, not a huge amount, but too big when you cannot pay! And that was my worry that I wouldn’t be able to make a payment and will lose the house!

Then I listed my income…….

I took away my monthly expenses and debt repayment totals………

No surprise result:

Income less than outgoings = debt increasing each month!!!!!!!!!!!!!!

Result MISERY

Solution: live within my means and cut outgoings to less than income.

First, I looked at each expense – was it vital?

If yes, was this the cheapest price I could pay for this item?

If no, I cancelled it.

By doing this exercise I was able to free up some extra cash to take my outgoings to below (not by much, but below) my income, which allowed me to increase slightly the payments to the highest interest rated credit cards and continued until all were paid off.

I was amazed to read recently that if you only ever make the minimum payment and are charged around 17% it will take about 40 years to clear the debt! Astounding! And think of all the interest wasted too.

So after four years of sticking rigidly to my plan, not only did I manage to pay off all my debts and build a small savings pot, I managed to stay debt free for when redundancy did strike last year, the worry wasn’t as great and I was so thankful I had done so too.

Result HAPPINESS