Five Ways to Lead a Debt-free Life with Proper Financial Planning

Introduction

Debt is an inevitable consequence of thinking big with a real urge to make it happen. To give shape to your ideas, which could be an innovative business or an expensive education plan, you need a lot of money. Taking a loan to achieve something remarkable is actually a great decision. However, no one really wants to live their life repaying debt. From student loans to fund your education to a home loan, it seems debt is the only way to achieve a lot of big-league goals. However, you can avoid or manage your debt well enough to lead a life of your dreams with the right kind of financial planning. 

Here are five ways you can ensure you aren’t bogged down by debt:

1. Create a surplus every month 

Having sufficient savings can help you steer clear of debt. From the first month of receiving your pay cheque, you should aim to create a surplus. Cut down on unnecessary expenses and work towards a solid savings and investment plan. Drafting a budget can help you with this. A budget will assist you to keep track of your expenses and saving the surplus.

2. Work towards a goal 

If you have a financial goal, such as saving for a vacation or buying a new car, you can work towards it instead of taking a loan to fulfil that goal. Loans entail paying an interest, which can compound and increase your debt. Instead, if you have an achievable goal with a clear timeline, you can allocate money towards it every month to achieve it. 

3. Build an emergency fund 

Often, people end up taking loans during financial emergencies. For instance, a health emergency can demand excess money, or you may lose your job, during which you will not have any money coming in. If you have an emergency fund that you can dip into during times of need, you don’t have to go down the road of debt at all. Ideally, you should have at least three months’ worth of your expenses in a liquid emergency fund. Creating a budget can help you estimate your monthly expenses, depending on which you can build your emergency fund. You should also have sufficient health and life insurance cover to avoid financial loss due to the hospitalisation or death of a person.

4. Pay off your credit card balance every month 

Having a credit card is not a bad thing. It can contribute to your savings through discounts and offers. However, if you go overboard with credit card spending, you will get into a debt trap. Never accumulate outstanding amounts on your credit card that you can’t pay off monthly. It is best to use your credit card like a debit card, swiping it only when you know you can pay it off. You could also set a limit on your credit card to ensure you don’t overspend. The trick is to use the credit card to your advantage instead of raking on a large outstanding balance.

Additional Read: Red Flags in Financial statements: Watch where you jump!

5. Use extra earnings carefully

If you ever receive a cash gift, a bonus or an inheritance, investing it in the right avenue will help you bolster your assets. Instead of spending it impulsively, you could use it to meet a financial goal or add it to your investments so that you can use it later. All it takes is some prudent financial planning to ensure that you put the money to good use. 

Takeaway 

It isn’t impossible to lead a debt-free life. You need to realise that living debt-free is a mindset more than anything else. With the right financial planning, you can avoid debt all your life and still meet your financial goals comfortably.