IN THIS ARTICLE:
Paying off debt once and for all is a monumental achievement; congratulations! Many Canadians go their entire lives without ever being able to call themselves debt free and if you get to this point in your life, you should do everything you can to stay there.
Life always has a way of surprising us, so staying debt free is often easier said than done. The pressures of life may threaten to pull you back into the clutches of debt with unexpected expenses like furnace repair, car repair or vet bills that you couldn't see coming.
You’ll have to fight to stay debt free. That's okay; there are steps you can take that will insulate you from debt and help you avoid taking on debt in the future. Here are three main lifestyle changes you can make now to help you stay debt free for the long term.
Life happens! When the unexpected occurs, it can send you into short-term debt. One of the top reasons why Canadians borrow money from easyfinancial is to pay for unexpected expenses. When you pay off your debt, protect yourself from future financial emergencies by saving up for a rainy day.
An emergency fund is an amount of cash saved in a savings account that you’ll use when unexpected financial emergencies come up like car repairs or even job loss. The general rule of thumb is to save between three and six months of your basic living expenses. That might seem like a large amount, but that nest egg will enable you to deal with emergencies without having to borrow money, which you will need to pay back with interest. And should you find yourself unemployed, you will be prepared to support yourself for a few months while you create a plan or look for new employment.
Every month, contribute some of your income to your emergency fund, and it’ll be full in no time! Once your emergency fund is full, you won’t have to rely on your credit cards or lines of credit to handle emergencies, which will keep you out of short-term debt.
While having an emergency fund will keep you out of debt when an unexpected emergency comes up, many Canadians get into debt because they make a big purchase, like a vacation package, entertainment system or vehicle and slowly pay it off. Instead of saving up before purchase, these big, multi-thousand-dollar purchases go on credit cards or lines of credit and the balance accrues interest.
The benefits of saving up before making a purchase is twofold:
- You'll save money on interest, as you won't be using credit to make your purchase. By saving for these purchases in advance you’ll enjoy vacations, home renovations, and vehicles without debt hanging over your purchase.
- You'll be in a stronger financial position. If it takes you 12 months to pay off the vehicle you purchased, you have also put yourself in a financially vulnerable position as you are also unprepared with savings if you're hit with an unexpected expense while also paying off your big purchase.
The key to saving for big purchases is planning. If your car is getting older and you’re starting to think of replacing it, the time to start saving for that is now!
At some points in your life, you may be faced with a financial emergency that requires immediate relief. In other cases, you may deal with long-term debt that you've accrued through lifestyle habits that we're all guilty of; relying on credit cards or paying not paying credit cards off in full, impulse purchases and so on. Adjusting your lifestyle and spending to match your income will help you break the debt cycle and secure long term financial health.
Living within your means is easier said than done. If you relax your vigilance for even a year and let your spending creep up, you could find yourself back in debt. To avoid inadvertent spending, set a budget and stick to it.