How to be debt free for life

Jyoti is a successful lawyer. However, her childhood was marred by poverty and there was never enough money for anything beyond the basics of food, shelter, clothing and schooling. Now that she is earning well, Jyoti wants to compensate for all that she lost out on while growing up.

She wants to enjoy a great lifestyle, with expensive holidays, latest gadgets and car, a home in a posh neighbourhood, all largely financed with loans. She saves a little money every month, but hasn’t been able to commit to a disciplined plan to save for her retirement. She is up to her eyeballs in debt. It seems quite baffling to her that some of her colleagues, friends and family live a completely debt-free lifestyle. They save money to buy what they want, have nice houses and cars, and take regular holidays with their families. She wonders how they do it.

Jyoti must realise that debt-free people aren’t that way by accident. They have a specific mindset and habits about money, which they handle in a responsible and realistic way. Removing her negative emotions and attitudes towards money would be the first step towards changing her habits.

Cutting down on some random expenditure isn’t going to help much. Living a debt-free lifestyle will need an overall change in how she approaches money. Most importantly, she must learn to give herself some time between her impulse to spend, and the actual decision to buy. She’ll be amazed at how many things that seemed like a ‘must have’ were actually just a fleeting impulse or an impatient gene! Turning off the one-click purchase function on shopping apps will give her the cooling-off period.

Every time Jyoti uses her credit card, she must pay it off that same evening—essentially treat it like a debit card. Credit card helps pile on debt. Alternately, she must try to move to a cash-only phase for some time and take out a set amount of cash for the week. She must calculate how much money she needs to spend on her regular household expenditure including some extras each week and withdraw it in cash. When the cash runs out, so does her spending rope. Additionally, she must automate her debt payments and compulsory savings. This will ensure that these important payments are never forgotten (or skipped in favour of a big night out or a nice new outfit). She must stick to her workable budget, even if she starts earning more and gets an additional bonus, unless she feels the need to.

Jyoti must start funnelling all extra income into her debt repayments or her savings and become goal-driven. Having a goal in place, whether it’s paying off debt or saving for early retirement will allow her to start earnestly working towards these.

(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)


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