Imagine having few bills outside of regular living expenses like food and shelter. Imagine what it might be like to keep the bulk of your paycheck for yourself. Picture a lifestyle where you have extra money to save and invest every month.
While this might sound crazy and outside the norm, this is exactly how debt-free families live. Without the burden of debt, these families avoid the stress that comes with owing money while using their "extra money" to get ahead.
But, how does an individual or family become "debt-free" in the first place?
6 Characteristics All Debt-Free Families Have
While some families avoid debt by living frugally, other families start off with debt then decide to get off of debt later in life. Either way, living a debt-free lifestyle requires a certain amount of grit. Why? Because the temptation to get into debt is all around us.
Keep in mind that the average family with debt carried $15,675 in credit card debt in 2015 and you'll know just how true this is. From the pressure to "keep up with the Joneses" to the high costs of keeping a family fed and clothed, there are numerous causes for debt.
Still, debt-free families manage to persevere and build lifestyles that don't require borrowing money. If you're wondering what these families have in common, here are some characteristics most debt-free families (and individuals) share:
1. They keep a budget and track their spending.
When you don't bother to track your spending, living a debt-free lifestyle becomes immeasurably harder. Why? Because purchases tend to add up quickly when you're not watching, and failing to track can lead to an unpleasant surprise.
By tracking your spending and sticking with a monthly budget, however, you can stay on track with your financial goals in real-time. Most debt-free families know this already, so they take special care to create a realistic budget and stick to it each month.
Budgeting doesn't have to be fancy, either. It's possible to create a written monthly budget each month with a plain ol' pen and paper, then keep track of your spending by hand.
2. Debt-free families know how to tell themselves "no."
Want to know how debt-free families stick to their budgets? Somewhere along the way, they learned how and when to say "no." They may feel the temptation to keep up with their neighbors and friends in terms of their spending, but they don't necessarily follow the crowd.
This is often the toughest part for people who want to be debt-free. When you work hard at your job, it's easy to convince yourself you "deserve" to buy whatever you want. Debt-free families don't fall into this trap as often because they have decided their financial goals and debt freedom are more important than anything else.
3. They live within their means.
Families who are debt-free don't just track their spending; they also track their earnings. Since freedom from debt requires spending less than you earn, this is an important detail to note.
When you don't compare your paycheck to the amount you spend each month, it's much easier to overspend and buy things you can't afford. But when you're debt-free and plan to stay that way, you know how crucial it is to keep your spending in line with your "means" – or what you can actually afford.
4. They have an emergency fund.
A 2015 study from the Federal Reserve showed that nearly half of American families don't have $400 stashed away to easily cover an emergency upfront in full. Without some form of emergency fund, these families are just one job loss, one bad income month, or one surprise expense away from landing in debt – or ending up further in debt than they already are.
Debt-free families know that emergencies happen and they plan accordingly. By keeping a stocked "emergency fund" to take care of unexpected expenses, they can avoid spiraling into debt if they need surprise home repairs, their car breaks down, or they owe big medical bills.
5. They make their finances a priority.
Becoming debt-free doesn't usually happen by accident; most of the time, one's journey to debt freedom involves a whole lot of planning and dedication. Creating a budget takes time each month, as does tracking your spending and keeping track of your financial goals.
Debt-free families know this already, but they make it work because they are dedicated to the cause. By making their finances a priority, they make sure their money is spent in a way that will help them reach their goals.
6. They give credit the respect it deserves.
While it's easy to assume debt-free families never use credit cards, this couldn't be further than the truth. Many debt-free families use credit cards to take advantage of the many consumer protections they offer. Others use credit cards to rack up rewards in the form of cash back, travel credit, airline miles, or hotel loyalty points.
The big difference in how debt-free families use credit is that they treat credit like cash. They may charge plenty of purchases to take advantage of consumer protections or earn rewards each month, but they include those purchases in their budget and pay their credit card bills right away. Debt-free families never carry a credit card balance each month, and they despise the idea of paying interest charges.
As you can see, most people don't wake up debt-free. Instead, they become debt-free and stay that way by putting effort into their finances and avoiding situations that require borrowing money.
It's not always easy, but many feel the effort to stay out of debt is more than worth it. Like we mentioned already, imagine the freedom you'd feel if you kept most of your paycheck and never had to worry about owing money.
If you're desperate to become debt-free but don't know where to start, consider your feelings on each of the characteristics on this list. Could you use a written budget each month? Have you learned how to tell yourself "no?" Do you have an emergency fund that will help you avoid debt during hard times?
If your answer to any of these questions is "no," you now know exactly what to change if you want to get out of debt – and stay out.
Being intentional and disciplined is the only way to avoid debt for a lifetime. As with anything else, only you have the power to change.