How To Be Debt Free – Your Blueprint To Financial Stability

Step 0 – Create your monthly budget

Make sure you’re up to date with all of your bills and create your monthly budget using whatever method you prefer. A popular one is the Zero Based Budget where every single penny in your budget is allocated a purpose (be it paying bills or going to a savings account).

Step 1 – Create your Emergency Fund

The amount is up to you but a good amount to hold is £1000. This should be set aside and forgotten about unless an emergency crops up that you haven’t taken into account.

Step 2 – Pay off all debt

Easy said than done but this should be your main goal when trying to become debt free. There will have to be sacrifices with the costs of living. Cut back where you can. One method of doing this is the snowball method. We’ll be writing about that soon.

Step 3 – 3 to 6 months of expenses in savings

Step 3 is all about saving enough money to cover 3-6 months’ worth of expenses if ever you needed it – it’s purpose is to stop you from having to get credit for something that you need urgently or to cover your income if you needed it to. This is not a savings account for something you want though as that’s a whole different thing.

Step 4 – Invest in your pension

If you can increase your contribution to your work pension, you should. Most work pensions offer a great like-for-like benefit where your contribution is matched by your employer. Free money. What’s not to like?

Step 5 – University funding for children

Once you are at this stage in your finances, you should start to plan medium to long term. If your children decide to go through higher education then they will most likely need to pay big fees. It’s true that they can get loans to help them out but any help you can give as a parent would ease their debt once they graduate.

Step 6 – Pay off your home early

If you can overpay on your mortgage each month, this will go a long way to paying off your home. The interest rates on mortgages can be eye watering so paying extra each month will help to ease this.

Step 7 – Build wealth and give

This step is the end goal – you’ve got no debt, your home is your own and you have funds set aside for expenses, emergencies and education (if necessary). Now’s the time to just keep on building that wealth however has worked for you, whether it’s investing or saving. If you can’t afford to give money then time can be a great benefit for some charities – even an hours dog walking for your local dog shelter will help massively and won’t cost you a penny.

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