Stay Out of Debt FOREVER by Planning for Huge Expenses

If you’ve read part of my story on this blog, you probably know that I like used cars, hate debt, and absolutely love to travel. To me, these three items all build on each other. For instance, ever since we got married, my wife and I have always paid for our used cars with cash. This has helped us to get rid of all of our consumer debt and most of our mortgage debt. It has also allowed us to travel more than we would have if we were in a lot of debt.

This has created a perpetuating cycle. Buying used cars helps us to get out of debt. And being out of debt allows us to travel.

So buying used cars is one of the main things that allow us to travel so much.

However, there’s a problem with this. Buying any type of car, whether it is new or used, and going on huge trips usually causes people to go into debt instead of get out of debt. So if we want to make sure that we don’t go into debt for big expenses like cars and travel, then there needs to be something else in our equation.

Getting into debt

Buying a car and traveling are just two of the many things that cause us to go into debt. One of the other things that causes many people to go into debt are large fixed expenses that occur regularly.

In my own life, some of these large expenses include:

• Taxes
• Car insurance
• Property taxes
• Home insurance
• Christmas
• Activities for our kids
• Buying a car

Each of these expenses are ones that I know will occur. There are also unexpected expenses that will pop up like hospital bills, car repairs, or home repairs. All of these large expenses could cause us to go into debt or at least make it very hard to get out of debt.

However, we know that these expenses are going to happen. So it makes sense to plan for them!

The secret to staying out of debt

So here’s the secret. We know that we will have a lot of big expenses over this upcoming year. We may not know what they all will be yet, but we know that they will happen. Therefore, we need to save for these big expenses so they don’t turn into debt.

Here’s what my wife and I do. On the 23rd of every month, we have an automatic debit from our checking account to an online savings account. Currently, this amount is $800 because we are saving up for a newer car and to remodel part of our house.

Now I know you may be thinking that this is kind of a lot of money. And it was a lot of money for us too, especially when we first got started. However, we are able to save this much money every month because we are done with all of our consumer debt.

As you may have read about earlier, there was a point in our lives where we were in a serious amount of debt. We had so much debt that we were paying around $40 per day or $1,600 per month in interest payments. Since we are now paying $7-8 per day in interest payments on our mortgage only, it’s much easier to save $800 per month.

How to do it

With just about anything that you do, once you make it a habit to save money, it becomes much easier. Therefore, it is easier to save money each month if it is automatic. If we didn’t automatically have $800 coming out of our bank account each month, then there would be some months that we would never save this money.

We also need to make sure that we have enough money in our account so that we can save each month. Getting rid of car payments and other debt helped us out with this.

For instance, let’s say that you have a $350 car payment per month and there are 24 more months left on the car note. This can make it really difficult to save up some money. However, after you are done with this debt, it will become much easier. Just continue to pay the car payment after you get out of debt. But instead of using your car payment to make Ford or Toyota wealthy, save it for yourself!

You can do this with your car payment, credit card bill, or anything else that you are no longer paying.

Once you have some money saved up in the account, you won’t need to get a loan for your next car. Instead, the money will be there, ready and waiting when you need it.

How much to save

There are a lot of factors that play a role in determining how much money we should save in this account. The two main factors to consider are the amount of debt we have and the amount of big purchases that we are expecting to make.

If you have a lot of debt on credit cards, car notes, medical bills, or student loans, then the amount of money that you save in this account should be minimal. However, there has to be enough money in this account so that you don’t go into more debt every time there is a big expense.

It doesn’t make sense to pay off $3,000 in student loans and then put a $3,000 property tax bill on a credit card that you can’t pay off. Instead, if you know there is a $3,000 property tax bill due in 10 months, then you should save $300 per month into this account.

Think about all of the larger, irregular expenses that you have. You know, the ones that caused you to go into debt last year. Perhaps you had some dental work done or are expecting some this year. Or maybe you went into debt to pay for Christmas. Take those large expenses, divide them up into smaller pieces, and save for them monthly.

No more debt

I know that saving some money in an account can seem like a daunting task. But, just like any habit, it will get easier once you start doing it.

So here are your action steps:

1. Determine your big expenses and how much time you have before paying them.
2. Divide each big expense by how much time you have left to pay for it.
3. Automatically save for these expenses each month.

Doing these 3 steps will ensure that you will always have money to pay for big expenses. They will also allow you to stay out of debt forever!

Let us know how you are able to avoid debt by checking out the comments below.

And thanks for reading!

~Nathan

Let’s keep living a great life … with the help of money. So what’s next?

• You can travel for free by using rewards credit cards.
• You can get motivated and get out of debt.
• You can check out the next post or the previous post and continue to learn.

But no matter what you decide to do, let’s leave the ordinary behind and take action today!