Have you ever considered being debt free to be a habit? It’s probably not something we would consider often. We think of habits as things like eating healthy and exercising, something that is a regular practice. But being debt free definitely falls into this category.
You see, spending money is a habit, accumulating debt is a habit and therefore breaking this habit requires the creation of another habit – one that is the habit of being debt free.
It is a conscious choice, an effort and a decision that is made, to be debt free, and there are habits that those who are debt free posses. Things that help them remain within their ‘free of debt’ status, and it’s not as simple as creating a budget.
If you’re on the path to becoming debt free, then it’s a good idea to start creating some of these habits for yourself. Don’t stress about trying to add them all in at once – that’s the thing with habits, they take time to create (and that’s okay).
Perhaps you already do some of these things? Or maybe you’re looking for new habits to add in.
Either way, these are the habits of people who are debt free that you can adopt into your life too.
1 – They Know Their Money
I doubt you’d ever be able to find someone who is debt free who didn’t know all about what money they have coming in and what money they have going out. Knowing your money is the first step in managing it, and those who are debt free have this down pat.
It’s not about restricting your money in any way – it’s more about getting the overall picture. You can’t control something if you don’t know what’s happening. It would be like a football coach trying to coach a game without looking or listening to the match (I don’t know a lot about football but I understand it’s kind of essential to know what’s going on).
People who are debt free know their money, where it is, and what’s happening with it.
2 – They Have Multiple Income Streams
In a study, it was found that 65% of self-made millionaires had 3 or more income streams. Now, this doesn’t mean you have to aim to be a millionaire or that all people who are debt free are millionaires. It means that of those who have a significant amount of money (and one would hope are those who manage their money well), almost two-thirds of them have multiple income streams.
So what does this mean?
An income stream is a way for you to earn money. For example, when you work your job you get paid a salary and therefore that is one income stream. If you have two jobs, you have two income streams.
Generally speaking, one income stream doesn’t rely on another and therefore if one income stream is taken out of the mix, then you have other sources of income to keep you going.
Things like investment properties, shares, side hustles or second jobs are all common income streams.
So what does this mean for you?
If you want to pay your debt down fast and live a debt-free lifestyle, find different income streams you can add to your overall wealth.
3 – They Budget Like A Business
A business that runs their finances at a loss isn’t going to survive long. If you’re living your life adding to your overall debt pool, then you’re running your personal finances at a loss.
We should be aiming to run our finances at a profit, just like a business.
There’s a lot we can learn from businesses and apply to our personal finances. We need to keep track of our income and expenses (Profit and Loss), mitigate overheads (keep our expenses under control) and invest in our future (create sustainable budgets and take care of ourselves).
One of my most favorite tools for managing and tracking my money is PocketSmith. It syncs all of our finances, including our loans and assets – which means it shows us our overall wealth. It’s also great for finding and tracking changes in our spending (so we can budget accordingly). I’ve tried so many different apps and this is the only one that I loved. PocketSmith is so easy to use and my husband loves how he can see how much we have left in our budget at anytime.
4 – They Invest In Their Future
Speaking of investing in our future, that’s one of the habits that people who are debt free possess. They understand that spending money now can pay off big time in the future, whether it’s educating themselves, making investments or anything else that they know will have long term benefits.
Someone who is debt free doesn’t plan their finances paycheck to paycheck, or month to month. They look towards the future, create financial goals and action plans to get there.
5 – They Avoid Credit Cards
For the majority of people, credit cards are a trap to more debt. Sure, there’s a handful of people who manage their credit cards well, but if you’re in debt then you’re probably not one of these people.
If you have a credit card then you should never pay a cent of interest. Someone who is debt free knows that a credit card isn’t their money, and they don’t overspend on them. They pay their credit card off at the end of each month and know exactly how much their fees are (yes, there’s often yearly credit card fees – have you checked yours?)
6 – They Don’t Overspend
People who are debt free don’t avoid spending altogether, they just make sure they don’t overspend. When they go shopping or spend money, they do so confidently because they know exactly how much they can spend and they know that their expenses are already taken care of.
They also don’t feel the need to buy things in order to make themselves feel good (which is part of their money mindset and they are aware of this). They can have a great time without spending a dime.
7 – They Enjoy Their Money
Money is fun. Understanding your money is fun. Knowing how to make your money work for you is fun and enjoyable. People who are debt free know that money isn’t evil (it can’t be, it’s an inanimate object!!) and they don’t hold negative feelings towards money.
They know exactly how to use money in an enjoyable way and know that it can help them live a life they love, if they know how to use it properly. They also know that the amount doesn’t matter, it’s what you do with it.
8 – They Set Financial Goals
People who are debt free know how to set financial goals – that’s how they became debt free. But it’s not as simple as saying ‘I want to pay off all my debt’. They know that you need to create a focused goal and an action plan to help you achieve it.
All goals without action are just wishes, and that’s not going to help you get anywhere.
9 – They Educate Themselves About Money
Who taught you about money? It’s alarming how many adults don’t know how to manage their money, and when you think about it, we’re rarely taught how! At school, we learn more about algebra than budgets and tax. And our parents pass on their money mindset to us, or they don’t talk about money because it’s not something to discuss at the dinner table.
Which means it’s up to you, and people who are debt free know this.
They continue to educate themselves about money, reading books, reading articles (like this one), listening to podcasts and keeping up with latest ideas and trends because they love educating themselves about something that is so important in their lives.
There are so many ways to consume information and there is so much information available, educating yourself about money incredibly easy to do.
10 – They Surround Themselves With Like Minded People
Forget about ‘keeping up with the Joneses’ this is about avoiding people who put out so much negativity about money that it makes it difficult for you to achieve your financial goals.
Imagine if you’re trying to pay off your debt and become debt free, and you are surrounded by friends who have to have the latest and greatest ‘toys’ and go into debt to do so. You’re happy in your comfortable home, knowing you can afford it and knowing it’s helping you achieve financial freedom, but your friends live lavish lifestyles in their extravagant homes.
Or, perhaps you have friends who criticise you, or don’t understand why you can only go out to dinner once a week instead of 5 times.
Or maybe they are negative about money, always saying that ‘money is evil’ or that they are ‘so broke’.
Have you heard the saying that you are the average of the 5 people you spend the most amount of time with?
If you surround yourself with people who are on the same path as you, have the same goals as you, you will naturally encourage each other and help each other along the way.
This doesn’t mean you have to cut off all of your friends, it just means that you should seek out people who have the same ideals and goals as you.
People who are debt free know what it’s like to be around those who are supportive and those who aren’t, and will continue to choose the like-minded people time and time again.
11 – They Have A Plan For Emergencies
What would you do if your car broke down right now? Or a bill came in the mail for $1000? Did you know around 60% of American’s don’t have enough money to be able to pay for a $1000 emergency if one were to pop up? That’s scary.
People who are debt free have a plan for emergencies. They have an emergency fund to cover at least the cost of whatever emergency may come up (usually $1000 is enough to cover it, but they would have at least the cost of their insurance co-pay for anything that is needed).
You don’t have to have tens of thousands in the bank, you just need a plan for an emergency – and your credit card does not count!
People who are debt free know how important it is to have the emergency fund set up before paying towards their debt and they know how much stress it lifts having it there. Once they’ve paid off their debt they work towards building up that emergency fund so they have even more financial freedom.
People who are debt-free didn’t just magically become so, they created small habits that they included in their day to day lives that led them to become (and remaining) debt free. You can add any of these habits into your life too as you work towards becoming debt free!