How to Live Without Borrowing Money

The recession has prompted many to decide that debt is not the way to live life. Some are deciding that it might be wise to adopt a lifestyle where borrowing isn’t necessary. Those who are already in debt might choose to pay off their debt as quickly as possible and not borrow again. Those without debt might decide to altogether eschew credit going forward. And, while a good credit score range might lower your insurance rates, your credit history becomes less vital if you don’t plan to use loans or financing in your life.

Four Steps to Living Without Debt

Some may contend that it’s impossible to live without borrowing money, but it is definitely possible with a little creativity.

Planning Ahead

If you want to live without borrowing money, you will need to plan ahead. Making purchases without needing credit requires that you look to the future and create a road map to help you achieve your goals. This means that you need to have a realistic idea of what things will cost and how long it will take you to save up for purchases.

This includes financial planning for major purchases like cars and college education. In some cases, planning ahead means opening an investment account to help you put your money to work for you.

Retirement accounts and college savings accounts can come with tax advantages and can be useful tools to help you plan for living without debt. Other purchases, like cars, can be made relatively easily if you have modest expectations and a plan.

Preparing for Emergencies

An emergency fund is also quite helpful when you want to live without borrowing money. One of the reasons that many people end up over their heads in debt is because an emergency can lead to the need to borrow.

A good emergency fund can help you prepare for car expenses, job loss, or some other catastrophes. If you work to build an emergency fund, you can protect yourself against the need to borrow later.

Protecting Your Assets

You can also help your debt-free lifestyle by protecting your assets. Insurance can help you offset one-time costs associated with car accidents, hospital stays and damage to your home. Life insurance ensures that your family won’t have to go into debt after your death. Consider what insurance coverage is appropriate, and get it so that you don’t have to worry about large disasters draining your funds.

Buying a Home

Perhaps the biggest item that people borrow money for is a home. This is a huge purchase. You might remember a real estate agent telling you about how your home is a significant investment, but it’s a big purchase. By the time you pay interest on a mortgage (over decades), pay property taxes, spend money on maintenance and utilities, and cover other costs, there is a chance you might not break even. Get Rich Slowly has an interesting break down of the financial (forget the emotional for now) aspects of renting vs. owning.

If you decide that renting is the best way to live completely debt-free, then you won’t have to worry about saving up for a house. If, however, you want to buy a home, you will have to decide if you wish to bend your “no borrowing” rule for this one purchase or whether you want to save aggressively — and get some help from an investing plan — to pay for your home with cash.

Miranda Marquit

Miranda is a professional personal finance journalist. She is a contributor for several personal finance web sites. Her work has been mentioned in and linked to from, USA Today, The Huffington Post, The San Francisco Chronicle, The New York Times, The Wall Street Journal, and other publications. She also has her own blog at Miranda Marquit.