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Tips on starting a debt free life?
hey, i’m 16, and i’m going to be looking for my first job soon. and i’ve seen how hard its been for my parents with debt. and I know that many people live with debt. so I want to live as debt free as possible.

What are key rules that you would say are essential for having a debt free life? Also, if you are in debt, what are the best strategies to do to get out of debt?

thanks!
hmmmm…emergency fund? that sounds like a great idea!

If you can’t pay cash for it, don’t buy it. Never, NEVER use credit cards unless you have the cash available to pay them off each month.
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The answer to BOTH questions in the same. WRITE a budget EVERY month. After you decide on a budget, you are not allowed to spend a penny that is not in the budget. If you don’t have CASH, you can’t afford it. A home mortgage is the ONLY exception. Getting out of debt means instead of savings, you budget extra payments on the debt.
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This is a fun magazine for teens http://www.brassmagazine.com/
Check out the Fundamentals & Starting Line Section. I give this out when I go to high schools to talk about Financial Literacy.

The best strategy is to save, to spend only what you have, to budget and realize that the little things add up.

If you are getting a job consider adding savings to your budget. I think you are smart to learn from your parents.
References :
http://www.mymoney.gov/
http://www.youngmoney.com/

Start your emergency fund before you have your first thing that can cost you money.

For example you might like to have a car but a car can get in an accident and cause you to pay a deductible. You might also need to replace the transmission or do other major repair. Those are the sort of things that get people to try to get credit. Even if you can afford to pay cash for the car and insurance you can’t afford it if you don’t have an emergency fund.
Before leaving home make sure you have enough to cover any possible emergency like a lost job or repair or medical bill.

Don’t go without insurance ever, get health, life and car insurance.

Many people think they are living on less than they earn but each emergency gets them in debt and if they are near the edge they have trouble getting back out.

Save 20% of your budget before you decide what you can afford for rent, food, transportation or other cost of living. It is easier to not build than it is to cut back.
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Well, you really can’t avoid debt. Having debt is good thing since it builds a credit history. There’s good debt and there’s bad debt. Good debts are fixed installment loans such as car loan, student loan, and a mortgage. Bad debts are credit cards. Anyway, both kinds of debts are shown in your credit history and you want to make sure you never miss or be late with your payments.

Most people today are having trouble paying off their credit cards. Many pay the minimum amount and with interest rate around 20% or higher, that credit card will never get paid off. I use credit cards, but I pay it off every month. Here are some things you should do if you have credit cards:
1) Never spend more than what you earn.
2) Never be late or miss your payments
3) If you follow #1, you should be able to pay off your credit card bill every month. As you get more bills as you get older, increase your income or lower your spending.
4) Budget yourself. Know how much income you bring every month and what bills you have to pay.

That’s how I pay off my credit card bills by using those strategies. As for my other debt such as my car loan, I pay more than the minimum payment. By paying more, I get out of debt faster and pay less on the total interest.
References :
http://finance1o1.blogspot.com

Do not get credit cards or anything other than a house or car requiring a payment plan. Pay for everything else with cash.
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I concur. I’m seventeen, but it seems obvious to me to never buy anything that you don’t have the money for right then and there. That’s why they have layaway.

Sometimes it’s hard for you when you want things like a TV and you have the cash ready, but you should ask yourself if it doesn’t make you feel better to just keep saving money. Ask yourself if it’s worth spending all your money. Money adds up. Establish some sort of lifetime savings. Seriously. That’s my most pressing goal right now, but I also have to sort out my financial affairs from earlier in my life.

It certainly makes me feel more secure knowing I have a bit of cash in case of an emergency, or that I could use for a flight to Paris, and that keeps me from buying clothes online. =]
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Don’t go into debt in the first place. If you’re 16, start earning money now. Save a good percentage, and do not buy what you cannot afford.

You might think along the lines of starting an online business. This can bring in excellent wealth, and once you’ve gotten the ball rolling it can often times carry itself.
References :
http://www.RepeatUntilWealthy.com

Don’t have a debt free life because you are afraid of debt. Debt is a tool. It must be used wisely. You would not use a blender to hit nails into floorboards. You would use a hammer. Debt is like a blender. It’s good for one or two things, but not everything. Use it wisely, and you will benefit greatly.

Firstly, you should save at least 10% of your income. Firstly, this should go towards an emergency fund, which, when you’re an old boring grown up like me, stops you resorting to credit cards and personal loans in emergencies. After you have a few hundred in the emergency fund, it’s time to start investing. Don’t be afraid of investing. You should go to the library and get some books out on personal finance. At 16, you’re smart enough to understand them. And talk to your parents. They will firstly be thrilled that you’re so mature, and secondly, they might be able to give you some advice or help you start investing.

You should have a bank account for savings. When you get some cash together to invest, your first stop should be a term deposit at the bank. For small amounts, this is the best. It will give you terrible interest, but better interest than what you’ll get on a normal account. It locks the money away. I’d lock it away in blocks of $100, so if you do need it, you only have to cancel one term deposit (which means you lose the interest) and you still earn interest on the others. When you have a few thousand, you can start investing in mutual or managed funds. Go to your bank and see if they have a financial planner you can talk to once you’ve saved a few thousand dollars. They can help you invest it wisely.

Use debt to only buy things that increase in value. For example, houses, and perhaps, if you’re very careful, good quality shares. Never buy anything else with debt. Never buy cars with debt. That is for morons. Save up and buy a car. Debt can be dangerous.

While I say that, it can be useful to have a credit rating. When you’re 18, apply for one credit card. Never apply for multiple cards if you’ve been turned down. Every time you apply for a credit card, it goes on your credit history and makes it look worse. So get one card, after you’ve shopped around to find the best one for you. Use it to buy one predictable expense a week, like groceries or fuel for your car. Then, repay it as soon as possible, with an extra dollar, so that the lenders know you’re a good risk. That will give you a great credit rating, so when you’re ready to buy a house, you’ll get a good rate on your home loan and save yourself thousands of dollars.

Don’t be afraid of debt. But don’t be blase with it either. If you buy a house, save at least 20% of the purchase price as down payment, and some extra for costs like building and pest inspections, taxes, etc. When borrowing for a house, a big deposit gives you ‘instant equity’, so you own more of the house, have less to repay, and can repay it faster. The faster you repay a debt, the less interest you pay, which saves your money.

I started at your age. I invested $6000. Ten years later, it was worth $18 000. Instant house deposit. With some other savings I had, we had a 30% downpayment. We are paying our homeloan off in 5 years, which will save us hundreds of thousands of dollars in interest. It is saving us at least the same amount we paid for the house. If you pay a mortgage out to the 25 years, you pay mostly interest. You normally pay double what you have borrowed over the term of the loan. But if you repay it fast, the money doesn’t sit there and earn interest for the bank. You cheat the bank out of their interest. Better in your pocket than theirs.

If you do find yourself in debt, pay it off as fast as possible so the banks don’t make money out of you. If you have lots of debts, find out all the interest rates, and make the highest interest rate debt the priority. It needs to be paid off first, while you make minimum repayments on the others. When the highest rate debt is cleared, move that money onto the second highest, and keep doing this until you’re debt free. That is the cheapest and quickest way to clear your debts.

I’m an Australian. Our Tax Office LOVES people investing their money. If you buy shares, often the business has already paid tax on those share earnings, so when you get your earnings, you get a tax credit. It’s great. So do some reading at your library on what sorts of investments there are, and what kinds of debt there are, and then you’ll be well armed to be an adult. Don’t worry about the hard stuff like tax breaks. Just learn about the different things you can invest in, and try some. Mutual funds (managed funds in Australia) are good for beginners, because they spread your risk over lots of companies and asset classes. You can usually start with a few thousand dollars.

If you’re an Australian, the best book I can recommend is "The Barefoot Investor" by Scott Pa
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As mentioned above, there are good debts (mortgage on house) and bad debts (credit cards).

Credit cards are not bad things if handled properly. Many people in my generation (and older) didn’t understand how to use them because they were new to us.

When you get your first credit card, keep tabs on what you spend each month. Verify it against the statement, when it comes in. Pay it off in full — *every month*. Don’t ever give them a chance to charge you interest.

This is only part of having a debt free life.

The other part is having savings built up so that, when large expenses happen, you’re ready for them.

It sounds silly to tell you to start saving for your retirement now, but if you sock away everything you can into RRSPs now, you will be in a *very good* position when you retire — or even if things are difficult before then. I had to do that this year, until I found work in my new city.

I didn’t start saving for my retirement until I was in my 30′s and I still need to save a lot more now. If I had started saving into RRSPs with my first job, I would have everything I need now for retirement — because the money there is building up interest the whole time.

You don’t have to lock your money into RRSPs just yet, though. You can set up your banking with two accounts. One is your working account and one is your savings. They can both be savings accounts, if you like, but one will be very active and the other will see some money going in every payday — and nothing coming out, except for emergencies.

One thing you can do to help your parents, is offer them some of the money you earn each month to offset the expenses they incur on your behalf; food, clothes, gas for the car, etc. This will also help you learn to pay basics first, like rent, utilities, etc., before you have the money for groceries, clothes, savings, etc.
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Life, and a very money-savvy mother.