Learn the 5 Best Financial Habits From Debt-free People

Being debt-free is a liberating feeling and is certainly achievable wherever you are in your financial journey. People that “do it right” use these five habits. You, too, can mirror their success by replicating these practices and making them part of your daily life.

Being debt-free is not only a huge stress liberator, it is also having the freedom to focus on things that matter to you. Please understand that in itself not all debt is bad; and in the right context, actually necessary to build your vision of the future. Debt in terms of mortgages or leveraging certain business ventures can actually be lucrative and a great investment that will better prepare you to meet your goals.

All it takes is the willingness to slowly and patiently implement a few everyday habits into your decision making and you’ll be well on your way to a debt-free life. Now, here’s the basic roadmap of those that have achieved successful debt-free living.

1. They live within their means

What Hollywood portrays of the rich and famous is typically an exaggeration of what wealthy people’s lifestyle really are. The reality is that most multi-millionaires you meet on the streets are actually ordinary people who live rather modestly and low-key. They typically live within their means and only spend on things that bring value to themselves or their business.

Living within your means can be defined as not spending more than what you make. While this seems simple enough, it can be difficult to control due to the wealth of credit options we have today. Just a couple swipes of your card and you could be knee deep in credit card debt without even knowing anything about it.

The next time you make a purchase large or small, ask yourself if you can pay it in full with cash at that moment. If the answer is no, you’d better put that credit card on lockdown!

2. They track and analyze their spending regularly

We’ve all heard all the benefits of budgeting but usually come up short when putting the plan into motion. One of the cornerstone habits of people who are debt-free is that they incorporate a budget into their personal finance plans while tracking their spending. Budgets are not meant to be restrictive, but rather to allow you to analyze your spending so that you can be more aware of where your spending habits may be costing you.

Check out Empeople’s Money Manager if you’re a member of our credit union and looking for a personal finance tool to keep you in check. Money Manager is available to all Empeople members via digital banking at no charge. It allows you to create budgets and savings strategies, track spending habits, set financial goals, monitor income and bills and more!

3. They practice delayed gratification

Delayed gratification is perhaps one of the most important, but also the hardest habits to master. The idea of delayed gratification has been researched most famously through the “Stanford Marshmallow Experiment”. In a nutshell, the study showed that children who make the choice to delay gratification early on, had a higher chance of financial success among many other life measures like health and social skills.

If you delay the gratification of getting the latest iPhone today or some fancy kitchen appliance that everyone is raving about, it would have a tremendous effect on your savings over time. With those savings, you can invest in more valuable things such as a home or your education.

This habit is cultivated by practicing delayed gratification, similar to how we train our muscles in the gym. Success in nearly every field requires you to ignore doing something easier (delaying gratification) in favor of doing something harder. When you’re faced with a choice to spend on something, ask yourself if you can wait it out for a greater reward in the future.

4. They think long-term

Not only do they practice delayed gratification, they often think of long-term goals. Planning for the long haul will help you control your spending and make better purchasing decisions. Your wealth is a marathon, not a sprint. It takes time to build your credit score and grow your savings. So when you save that extra $3 dollars for the coffee you didn’t buy today, it goes towards your bigger goals.

When planning and saving for a long-term goal, there is one saving method that would help you grow your funds faster than your average savings account.

5. They always save a portion of their earnings

Make it a habit to always save a portion of your earnings. It’s not a matter of how much you save, but that you do it consistently no matter how small. If money is tight for you, even $1 a day will go a very long way towards cultivating this crucial habit.

One big mistake that many people often make when getting a pay raise is lifestyle inflation. We’ve all heard of the term “Keeping up with the Joneses”, but sometimes we can be oblivious to when it happens to us. We work hard at our jobs to get a promotion, and more often than not, we think we deserve to upgrade everything that we have so that life gets a little more comfortable.

Now, there’s nothing wrong with that, but we often fall into the trap of thinking: “Sweet, I‘m earning an extra $400 every paycheck, now I can get those limited-edition shoes and branded purses!”.

The problem with this is that this behavior continues even when you’re making $1M a year. Only that you’ll be thinking: “Sweet, now I can afford $10,000 monthly payments of that fancy yacht I’ve been dreaming of!”. No matter the size of your income, you’ll always be stuck deep in debt making monthly payments. So the next time you get a promotion, or when your end-of-the-year bonus check comes in, always save a percentage of it before spending the rest.

If you’re looking at saving options, Certificates of Deposits (CD) is a great savings vehicle that gives you higher than average yield on your cash!

Being debt-free is a lifestyle choice that you can make. All it takes is a little persistence to tweak your current habits. Wherever you are on your financial journey, it’s important to be mindful of where your hard-earned dollar goes and to save a portion of it no matter how small because it’s the habit that matters, not the amount. Incorporating these five, proven practices will certainly help you reap all of the benefits of a debt-free life.