zenhabits : breathe

The Way of No Debt

By Leo Babauta

In 2005, one of the low points of my life, I had 5 kids, crippling debts, and was barely making it from paycheck to paycheck.

I would shove my bills in a drawer, envelopes unopened, so I didn’t have to deal with bills I couldn’t pay. I would avoid the calls of collection agencies. I was swimming in debt, and didn’t know how to get out.

The real low point, though, came when we didn’t have enough money to buy some milk and cereal for the kids. My bank account had a negative balance. So I stole money from my kids’ piggy bank to buy the food. Yeah, that didn’t feel good.

Things went on like this for awhile before I finally decided it was time to face the fears, see my situation clearly, and start doing something about it.

Here’s what I did:

  1. I finally faced the problem: I took the bills out of the drawer, and make a spreadsheet with all my debts, the amounts, and the minimum monthly payments.
  2. I took a look at our spending, and realized we needed to stop the bleeding before we could start healing. We were spending more than we earned, or at best, all of what we earned.
  3. So we cut out all kinds of expenses: cable TV, one of our cars, magazine subscriptions, daily lattes, going to the movies with the kids, buying new things other than actual necessities, going to the mall for entertainment, eating out, buying convenience food. Many of these things we cut out gradually, a month at a time, but some we cut out right away.
  4. We started a spending plan — most bills were put on automatic payment, and a few discretionary categories (food, gas, etc.)
  5. I started an emergency fund.
  6. I started paying off the debts, one at a time.
  7. I renegotiated with some of our creditors.
  8. We found other fun ways to have fun as a family.
  9. I started earning more as a freelancer, to bring in extra income.
  10. I started this blog, and sold my first ebook 11 months later, to make more income.

Then we got out of debt. And stayed out. We haven’t been in debt one single minute since then. It’s wonderful.

The Way of No Debt

The first part of the Way of No Debt is getting out of it. The steps I took above are how I did that. It’s the hardest part, but definitely worth it.

The Way is then a transition from being in debt, to living debt-free.

First, we kept living frugally for awhile — we didn’t really loosen up, and that meant we put a lot of our income to savings. We grew our emergency fund to the recommended 6-month cushion, which was important to me as a self-employed business owner.

Then I started looking to invest, and invested in index funds, which are pretty basic but low-cost and low-worry investment vehicles. Then I learned about tax-advantaged investment vehicles like IRAs, and got me some of those. I’m still learning about all of this, but the important thing is that I got started.

The Way is now just a philosophy, of not going into debt. I use credit cards now, but pay them off completely every month (for awhile, I paid them off weekly, then just set up autopay). I don’t have a car, but the last time I did, we bought it used, with cash. We don’t have a mortgage. We live within our means, and spend less than we earn.

This means we don’t worry about finances, for the most part. It means we don’t pay interest. We earn interest. We aren’t tied to a house, we don’t have anything expensive we’d need to sell, and we live lightly.

This is the Way of No Debt, and I recommend it highly.



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