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6 Core Characteristics of a Debt-Free Family

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Think about what your life would be like if you had few bills and were able to keep the bulk of your family’s income. You’d have more money to save, invest and get ahead. Although this may sound like a dream, it’s the reality that debt-free families enjoy.

Debt-free families create a budget and stick to it. They also communicate well with one another, set attainable goals, and have no interest in keeping up with the Joneses. Let’s take a look at the six core characteristics of a debt-free family.

1. They make their budget a priority

Without an established budget, it can be easy to fall into the cycle of debt. Debt-free families realize this and design a budget that can help them meet (or even exceed) their financial goals.

As Peter Palion, a certified financial planner at Master Plan Advisor, Inc. in East Meadow, N.Y., explained, creating a solid budget involves writing down your total monthly income, listing all of your fixed and variable expenses, tracking your expenses throughout the month, and adjusting as needed.

“You don’t need anything fancy. Simply write down your budget on a piece of notebook paper or use an excel spreadsheet,” said Palion.

2. They have an emergency fund

“Families that are able to stay debt free are not miracle workers or earning more money than the rest of us. They subscribe to a disciplined approach of paying themselves first and having enough on hand in a separate savings account to cover any emergency expenses that pop up,” said Kayse Kress, certified financial planner at Physician Wealth Services in Hartford, Conn.

Kress explained that establishing an emergency savings account is the first step to building a solid financial foundation. If you have debt, it can be difficult to get out of it if unexpected emergencies arise and you don't have savings to cover them.

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3. They have strong communication skills

Debt-free families use open communication to stay out of debt and work toward common financial goals. “Discussing your finances doesn’t have to be boring and mundane,” said Kress. “Grab a glass of wine and schedule time to sit down together to talk about your goals and how you'd like to use the money you're working so hard to earn.”

Kress recommends that families commit to only making agreed-upon purchases together that help in the path and pursuit of being debt-free. She also suggests that they gamify their money by rewarding themselves for hitting savings goals and staying on track. Splurging on a nice dinner out or a small purchase can help families continue their positive momentum together.

4. They aren’t afraid to talk to their kids about debt and money

When it comes to communicating with their kids about debt, debt-free families are honest and not afraid to let them know when they cannot have or do something. “If you have to skip this year’s Disney vacation to pay for an unexpected medical expense, let your kids know, especially if they are old enough to understand debt and budgeting,” said Palion.

Debt-free families also look for opportunities to talk to their kids about money. They may bring their children to the bank to show them how to make a transaction, or explain the benefits of comparison shopping and coupons while at the grocery store.

Assigning chores to kids, rewarding them with a monetary allowance and encouraging them to save for a large purchase, like a bicycle or television, is another common technique debt-free families use to educate their kids about money.

5. They cut spending

Families who are committed to a debt-free lifestyle have the discipline to cut spending. Regardless of how much they earn, they look for ways to spend less and save more. “People think that doctors, attorneys, business executives and other high-income earners must be wealthy since they make over six figures a year,” said Kress.

But as Kress explains, the reality is that many families with high earners spend 70 to 80% of their take-home pay on debt payments and other fixed expenses — meanwhile, they don’t have much money left for long-term savings goals and variable spending.

Debt-free families do not believe they’re entitled to large cars or huge houses. They live below their means so that they can save for retirement, open up college savings accounts for their children and pay for unexpected expenses without getting into credit card debt.

In addition, they cut spending by introducing their kids to free or frugal forms of entertainment. Rather than taking them to Hawaii for spring break, they may take their kids camping a few hours away from their home. They may also encourage simple activities like reading or playing outside and avoid hosting lavish birthday parties.

6. They set long-term goals

Goal-setting is important to debt-free families. By setting goals such as saving for retirement, going on a family vacation every summer, paying for a new vehicle in cash or funding college, they are able to stay motivated even when they feel like giving up.

“Families who set goals use delayed gratification to their advantage. They make short-term sacrifices so they can meet their large, long-term goals,” said Palion. These families may say “no” to everyday luxuries like Starbucks lattes and meals out so they can save enough for the things that really matter to them.

Becoming a debt-free family

If you’re longing for a more secure financial future and never want to worry about owing money again, we challenge you to embark on a debt-free lifestyle with your family. Consider these tips:

  • Talk about talking money: Discussing family finances can be awkward — at first. Have a chat with your partner about being more open about money and sticking to a budget. Then, loop in your kids over dinner and what that means.
  • Create a budget together: Sit down with your partner and list out your debts and typical monthly expenses. Kids need not be involved, but if they’re old enough, they may be helpful in reviewing line items. Determine a realistic debt repayment goal, like paying off a credit card in two years or sooner, and find room in your budget to help you reach it.
  • Help your kids learn to manage money: If you dole out an allowance, be proactive about helping your kid manage the cash. If you give them $5 per week, for example, have them put $2 in their piggy bank (for long-term goals).
  • Find ways to cut expenses together: If your family is used to a weekly trip to the movies or an annual vacation, ask them for their ideas on how to trim these expenses. You may, for example, opt to have a movie night experience at home by renting a movie and buying popcorn. Or you could discuss having a staycation, where everyone takes time off to try local experiences, such as visiting museums or trails near home.

You don’t have to make six figures to become a debt-free family, but you do have to work at it. Communicate with your partner and kids, revisit your budget (or create one), and map out your debt repayment. Set out a goal to repay your debt by a certain date and then find out how much money you need free up each month to make it happen. Working together with your family can everyone involved learn how to better manage money — and the experience may bring you together.

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