Borrowing money is ingrained into most people. The thought of living without borrowing money sounds very radical. The idea of spending your life living on borrowed funds is actually a concept that is less than 100 years old. Prior to the nineteen sixties, almost no credit cards existed. Before WW II, there were virtually no home mortgages. People paid cash for the vast majority of what they had. It is possible to live quite well without debt.
You need an emergency fund.
This is money to carry you through short term financial pinches. Home appliance repairs, unscheduled car maintenance, and minor medical issues all qualify in this category. This fund needs to have a minimum of the equivalent of your after tax income for three months. Six months is better. For most people this will be saved up over a period of six months to three years.
A debit card can make a big difference.
Keep a debit card attached to an account with at least a $1,000 minimum balance. This will give you the ready cash needed for your daily and weekly living expenses. Maintain close accounting on the use of this card so that you do not overdraw the account. This debit card will replace almost every reason that you have for owning a credit card.
Use a prepaid VISA card as a last resort.
Take $300 to $500 and buy a prepaid VISA card with low or no fees attached. Keep this card safe and with you. Use it to back up your debit card. This way if there is a time when you are short in your checking account, you will not be tempted to overdraft. Use this card and then reload it as soon as possible.
Establish a reciprocal financial safety net.
Everyone needs a financial safety net. For many people, this is their credit limits on their plastic. Since you will be living without credit, you need to establish a different sort of safety net while you are building up your estate. Eventually, your personal investments will serve as your safety net.
In the meantime, work with friends and relatives to establish a mutually beneficial agreement to come to the rescue when anyone has a major financial setback. This safety net can be funds that you can access and repay quickly to get you by speed bumps while you are getting your debt-free financial footing.
Live with the constant plan to conserve cash.
Save money on your purchases as often as you can. If you do not need it, do not buy it. Sell anything that you do not use. Make pennies count. Delay all purchases as long as it makes sense to do so.
Hide emergency cash in a fireproof container or safe.
You need to have some currency available in case of an emergency where you cannot quickly access your bank account. An area-wide disaster that takes out the power grid would be an example of this. A goal for this stash would be $500 to $5,000 depending on your resources. A good fireproof safe that can be hidden in an easily accessible area should be used to store the money. You may even choose to separate the money into several parts and store them in separate locations.
Establish and live by a strict budget.
A major component of living without borrowing money is to have a well constructed budget. This budget should account for all anticipated expenses and income for the month. You need to reload during the final ten days of each month for the next month. Any money that is above your expenses needs to be allocated to some sort of savings. This can be investments, a savings account to build your emergency fund, or money that you are setting aside for large future purchases that would not fit into a single month’s budget.