Living your dream life debt free requires a simply task of going back to Grade 1 math lessons and applying the concepts. Recall how your teacher taught you how to add and subtract. Two very important points to remember are: 1+1 = 2 and 10 – 1.
You might be giggling at this in that it is so simple but keep reading. Interestingly, as simple as it is, not everyone applies this math in real life situations.
If you recall your Grade 1 days, you will remember that the teacher explained that zero is not enough so there is a need to borrow from the adjacent digit. Likewise, in your adult life, you can think of the first number representing the source of your monthly income and the second depicting debt or expenses – you need to borrow from another in order to complete the operation.
Now hold that thought and think about this: living your dream life debt free.
Most people may define it as enjoying a luxurious lifestyle while others may define it as living a less stress-stuffed life. If you wish to live your dream life debt free then equalize your definition of “dream life” with the basic concept of basic mathematical operations that you learned in Grade 1.
What is 1+1?
1+1 requires assessing your monthly income. This is easy if you are receiving a constant amount from a particular source or sources in a month. Simply add these sources. In case your monthly income is variable, then project an income considering the lowest amount that you realistically get in a month. Warning: Do not assume. If you assume, it’s like counting the chicks from the eggs of your hen before they hatch. Plan your expenses according to what you have and not what you can have. Remember that 1+1 equals 2 and it can never be 3. For example, if you are expecting your sales volume to escalate, even if it is really possible, exclude it in preparing your budget.
What is 10-1?
This reminds us that we should spend within the limits of our income, otherwise we will have to borrow. If you think that this is simple, then why are there people out there spending more than their monthly income?
Well it’s because they are lured by that vision of a ‘dream life’ into over using their credit limit and acquiring mortgages that they can’t afford. Basically they are spending money that they have not yet earned.
How do you avoid this?
Use your math skills to define your dream life. Redefine your dream life to match the sources of your income. If you can’t get your dream life on your current income, then find ways to increase your income sources. Here are a few options:
- Turn some waste into money. Auction those items that you are not using anymore. Remember, attaching sentimental value on objects in your house won’t help your situation. It will just turn your home into a warehouse of unused things that in essence are costing you money.
- Optimize online tools that generate income. It is much easier to endorse products now. Gone are the days that only celebrities can endorse products. If you find an item that is selling like hot cakes, identify the source and let your friends in your social network know that you are a distributor of this item.
- Monetize your hobby. Turn your hobby into something that generates income. With this, you satisfy two needs – need for recreation or break and the need to augment your income.
- Minimize “1-0”. Realizing your dream life debt free is not only about earning more money. It is also important to minimize expenses. If you cannot control your spending, no matter how hard you work or how much you earn, you will be likened to a bottle with a broken base that no matter how much water you pour in, it will never get filled.
The key is keeping life simple and healthy. Itemize your expenditures. Is not the bulk reflective of your expenses used for unhealthy activities, hobbies, vices or food? For example, if you transform your diet to veggies and fruits, you will cut considerable costs in food expenses. If you exercise, you can cut medical expenses that may be equivalent to thousands of dollars down the road. If you stop smoking, you can use that money to fund your emergency fund. Do you see where I am going with this?!
Basically, living your dream life debt free is simple. It’s not difficult, not complicated, and not impossible. Just use the math you have known since you were little as a a basis for defining your budget. This simple step will be the key to living your dream life debt free.
I like the 10 -1 part as a reminder. Getting (and then staying) out of debt really is about spending less than you earn and saving for the future.
@Jackie. I think staying out of debt is the hardest part for people. Once people finally get caught up it seems like disaster strikes and they get behind again. I have seen this happen many times. People just can’t get out of that cycle.
The disaster that most often strikes is a health emergency. Health insurance is a major necessity as is a good emergency fund. Otherwise a person is just whistling in the dark as they pass the cemetary hoping they don’t get sick. As you said, keeping healthy should be a major priority. Going vegetarian works for that too. Getting enough sleep and exercise are wise investments. Going for a walk is cheap–no need for health club membership.
@Maggie. You are absolutely right Maggie. A lot of the time what gets people into issues is paying for those medical bills. We are fortunate here in Canada to have a public medical system that we pay for through our taxes. However, prescription drugs and stuff still cost out of pocket. Staying healthy is the key to avoid any medical costs like you mentioned. Sleep, exercise, good diet, and fresh air are all great ways to be healthy people. Being healthy is something that is important to me and my family.
One of my core financial beliefs is one that you stated here: the importance of reducing/managing your expenses is more important than making more money. Absolutely! A very creative spin on budgeting – good work! I will try to be more creative with things from now on out. 🙂
@20’s finances. Glad you enjoyed the article. I agree with you. Management is the first step we need to master before we increase otherwise we won’t know how to manage our increase well.
Some good practical advice here Miss T. I’m going to have to keep this in mind when it comes time for our next mortgage. The first mortgage is almost paid and we’re planning to move to a bigger house sometime in the next year or so. It’s going to be hard to not take an extra large mortgage because both of us want a really nice house.
We paid off the first mortgage in less than 5 years though, so at least we are pretty dedicated at reducing those mortgage balances!
@Saving Mentor. Congrats on your quick mortgage pay off. That is awesome. Paying off our mortgage fast was one of our goals too but we have now shifted more to retirement and TFSA’s for now. We want to have a parenting leave fund saved up within the next couple years. Remember money is meant to add to our quality of life so if you want that big house, make it happen the smart way.
Excellent tips Miss T. Reduce expenditures, save, live within your means. Has worked quite well for me!
@MoneyCone. Thanks. Like anything though, it is easier said that done. Some people have a really hard time reducing their expenditures. They just can’t prioritize what they need more. I feel for people in this situation because they are missing out on so much by failing to focus on what’s the most important to them. Glad to hear you have found a plan that works for you and your bank account.
I always had a low profile lifestyle. I figured out what is important in life and it wasn’t spending money! I value friends, family and experiences vs. just throwing money around. I keep debt to a minimum, I only have a small mortgage that will be paid off in less than six years.
@Krantcents. Congrats on paying off your house in such a short time. That is great. I too, like you, value experiences and people. Stuff doesn’t matter to me too much. It’s the memories I make that I cherish the most. This is why I try to spend my money on making memories because that is what matters to me. The rest, I try to save on since it doesn’t matter as much.
Simple arithmetic – you hit the nail on the head!
I’d love to hear more about product endorsements – perhaps you have (or will have) another post discussing how to on that topic.
@Marie. Actually, I haven’t done a lot of that yet, but I have thought about it. I am actually looking into seeing if I can advertise for a few companies for products I like using. I am not sure if it is going to work out though. Can’t be faulted for trying though right?!
Clever. I never thought about the “endorsement” option. Making more money is only stifled by your imagination.
@Barb. It’s true. Anything is possible, including making more money. You just have to work hard to find a way sometimes. Often we can convince ourselves of defeat before we even try something. Breaking this habit could lead us to more money in the bank.
I prefer not to use credit cards. Although there is an incentive of a few percent back, I find it all too easy to spend over the limit.
@Tony. Well they aren’t for everyone. For us, they work great. We always pay off our balance and we love the point bonuses. I got 4 free flight last year alone which helped save a bunch on vacation costs.