Three habits can keep you out of debt

Staying out of debt is simple, but it's not easy. It requires fortitude. It means foregoing impulsive purchases in exchange for long-term financial freedom. Staying out of debt requires that you deny cravings, at least temporarily, for the "must-have" stuff that beckons from every mall, television advertisement, and magazine.

Personal debt can be categorized as necessary or unnecessary. Necessary debt can generally be linked to assets such as your home mortgage, a basic car for getting to work, or a college degree. Unnecessary debt, on the other hand, might include routine credit card charges or installment loans for items that rapidly decline in value.

If your goal is long-term financial freedom, avoiding unnecessary debt is crucial. Three simple habits can help you achieve this goal.

1. Live below your means. Much of the stuff that seems so essential today will, in fact, grow less desirable over time. Of course, living below your means requires that you discover what those "means" are. For many people, this means tracking your income and expenses over a period of time - a month or more - to learn where your money comes from and how it's spent. You might be surprised. That cup of gourmet coffee on the way to work, that weekly meal at the fine dining establishment, that car payment for the latest sedan - all cut into your disposable income. By spending less on such items, you'll be able to save for the future and develop long-term wealth.

2. Save for emergencies. By setting aside money in easily accessible accounts, you avoid racking up credit card bills when unexpected expenses occur. Such expenses could include trips to the emergency room, replacing the water pump on the family car, or patching a hole in the roof. A reserve fund can also help you survive periods of unemployment without incurring additional debt.

3. Use debt wisely. If you decide to incur debt, know what you're doing. Slow down, take a deep breath, think about how valuable this item will seem three months from today. Also ask yourself whether you can pay off these new charges out of next month's income.

Staying out of debt isn't glamorous, and it requires more than a little self discipline. But the long-term benefits are substantial. If you'd like additional suggestions for developing habits of financial discipline, give us a call.