5 Tips to Mastering the Art of Debt-Free Living

A good number of Kenyans are living beyond their means and accumulating massive amounts of bad debt. The exact percentage is debatable, however, 100% of the population owes an estimated Ksh152,000 when it comes to the country’s national debt.

According to data from the Central Bank of Kenya (CBK), Kenya's public debt as of January 2021 stood at Ksh7.35 trillion.

The CBK publication also revealed that Kenyans used their personal assets to borrow Ksh26.8 Billion between July to November 2020.

Millions of Kenyans have installed caller identification apps in order to avoid the dreaded call from creditors.

While living debt-free sounds nearly impossible in today’s world, coupled with the ongoing pandemic that has resulted in mass layoffs, it’s still possible to work towards financial freedom.

Financial freedom generally means having enough savings, investments, and cash on hand to afford the lifestyle you want for yourself, and your loved ones.

Many have been burdened at some point with increasing debt, financial emergencies, and other issues that derailed personal goals.

However, the habits highlighted below can go a long way in setting us back on the right path.

Set Specific Life Goals

The key word in this is ‘Specific’. You need to honestly determine what financial freedom means for you specifically.

A general desire for it is too vague to be pegged down as a goal, so get specific.

You need to write down how much you should have in your bank account, what your ideal lifestyle entails, and at what age this should be achieved.

Always remember that the more specific your goals, the higher the likelihood of achieving them.

You can then count backward to your current age and set out financial mileposts at regular intervals. As an add on, make sure to carry these goals with you at all times.

Stop Spending at Random and Start Budgeting

A spending plan is the single most powerful tool when it comes to money management. Think of it as a sort of foundation without which any of the habits mentioned in this article will simply fail.

Money that comes in with each paycheck that doesn’t have a written and detailed purpose will mysteriously vanish before your very eyes. You'll just be baffled as to how you suddenly have more months than money during the very first week of the new month.

Granted, not many people one wake up in the morning excited about the idea of putting together a budget. However, think of it this way – the budget is not the goal but rather a means towards your specific goals.

Do you want to own a house, start a family, buy your dream car, take that holiday trip to the Maldives?

If your answer is yes, then you need to work on your budget. There simply isn’t a shortcut when it comes to this. Use your specific goals as fuel.

Try Out the 50/30/20 Rule

The idea is to spend 50% of your income on your needs, 30% on your wants and put the remaining 20% into debt repayment and your savings.

Keep in mind that these percentages are seen by most as the maximum you should spend. This means that spending less than these percentages can leave you with even more money which you can funnel towards some of your other goals.

As with all the other habits, for this to actually work towards realizing your drive towards financial freedom, self-discipline is key.

Pay Your Debt in Full

This does not mean using all your earnings to pay off creditors. You can go about it in two ways depending on personal preference.

Are you a ‘Snowball" or ‘Avalanche’ person?

With the avalanche method, list your debts with the highest interest rate ones at the top and pay those first, keeping up with periodic payments on the others at the same time.

The snowball method relies less on math and more on motivation. Make a list of debts from smallest to largest. Pay off the smallest debt first then work your way up with periodic payments.

When the first debt is gone, you take the payments you were making on the first debt and add that money to the minimum payments you were making on the second debt. Now that second debt is in your focus and is obliterated at an even faster rate than the first.

Creating a list of specific payment-dates goes a long way in making this work.

Live Below Your Means

You need to be honest with yourself and accept that cutting back for now is a necessity in order to realize your debt-free goal.

Mastering a ‘living below your means’ lifestyle is all about cultivating a mindset in line with this. Meat and beans both nourish your body with Protein, the choice is yours. Do you really need that TV subscription to enjoy the latest movies?

Making small adjustments by distinguishing between the things you need and the things you want is a financially helpful habit to put into practice.

Living life to the fullest with less is not so hard. Just focus on the bigger picture (your specific goals e.g. that trip) as personal motivation during the low days.

Automate Your Savings

Thanks to technological advancements coupled with the rapid growth of Kenya’s banking sector, it’s pretty easy to have some of the funds hitting your account being redirected to a savings kitty.

It’s also wise to have an automatic withdrawal for an emergency fund, which can be tapped for unexpected expenses, and an automatic contribution to a chama or something similar.

Ideally, the money should be pulled the same day you receive your paycheck, so it never even touches your hands, avoiding the temptation that comes along each payday.

Try adapting these habits and make an evaluation of your status after a year to see if you’re making any headway, and adjust whenever necessary in order to achieve your personal financial goals.

Always remember to do your research before making any big financial decisions.

For example, if you are looking to take up a loan, you could make a comparison chart of all your options so as to see which is best when it comes to repayment periods, interest rates etc.

Also, make it a habit not to ignore the dreaded collection calls that have seen some go as far as forcing some people to change their phone numbers.

Ignoring collection calls won’t make the debt go away and could make the situation worse. It’s best to acknowledge the debt and explain why you can’t pay it.

The creditor may actually help you out with the interest rate, and payment due dates.

Finding out if your bank is offering breaks on payments can save you a lot of grief and give you some time to work towards repayment.

Lastly, always remember that five fundamental principles guide all the above, these are: Consistency, timeliness, justification (justify every expense), documentation and accountability.