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3 Financial Habits That Have Saved Me Thousands in Debt

The Ascent 9/22/2022 Maurie Backman
A woman sitting at a table with a laptop and papers in front of her. © Getty Images A woman sitting at a table with a laptop and papers in front of her.

Some people don't mind being in debt -- or rather, they simply accept it as a necessary thing. But debt is something that's always bothered me. Sure, I can make my peace with paying interest on a mortgage, especially since I happen to have a very low borrowing rate on my home loan. But the idea of paying interest to a credit card company makes me want to pull my own hair out.

That's why I've always made an effort to avoid debt as much as possible. And upholding these specific habits has allowed me to steer clear of debt, even when things haven't always gone my way financially.

1. Living below my means

In my 20s, I had a well-paying job in finance that came with a higher salary than what any of my friends were making. In spite of that, I had a less-expensive apartment than most of my friends and made a point to pack a lunch for work most days instead of buying it. 

It's that practice -- living below my means -- that's helped me steer clear of debt through the years. If I encounter an unexpected bill, I often won't have to dip into my savings or reach for a credit card. The reason? I don't spend my entire paycheck each month, and I therefore have room to cover some unplanned expenses with that money.

2. Following a budget

A lot of people I know spend money on various expenses every month, but ultimately have no idea what each one costs individually, or what their bills amount to collectively. Frankly, that's not a great way to operate. 

I make a point to follow a budget so I can see where my money goes every month and what each expense category on my list costs me. That allows me to live below my means and give myself wiggle room for unexpected expenses. 

Nowadays, there are different budgeting apps you can use to make the process easier. I'm more old school, so I keep my budget on a spreadsheet on my laptop. There's no right or wrong way to go about the process, though.

3. Having an emergency fund

Even though I make a point to track my spending and not deplete my entire paycheck month after month, sometimes, large expenses pop up unexpectedly, and my remaining earnings can't always cover them. But even in those situations, I'm able to avoid debt by maintaining a solid emergency fund.

Some financial experts will tell you that you should have eight to 12 months' worth of essential living expenses tucked away in a savings account. I like to stick to the higher end of that range so I'm covered if something major happens. 

Both this year and last year, for example, my home's two air-conditioning units stopped working and had to be replaced for many thousands of dollars apiece. If it weren't for my savings, I'd have a huge pile of debt as a result. But thanks to my emergency fund, I've avoided that fate.

Sometimes, racking up some amount of debt is unavoidable. But if you want to do what you can to steer clear of debt, then it pays to start living below your means, sticking to a budget, and building cash reserves you can tap in a pinch.

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