10 Key Characteristics of Debt-Free People

What makes a superstar celebrity go broke and a regular joe meet his bills? Guest blogger Len Penzo says: a lot.

Editor’s Note: Several months ago we began seeking out the best money articles we could find. The goal? Create a personal finance “supersite” where the web’s finest writers can showcase what they consider their best work. The following post comes from our first such discovery, Len Penzo. Stay tuned for more!

This post comes from guest columnist Len Penzo at LenPenzo.com.

The other day a friend and I were discussing why some people manage to live their lives in complete control of their finances, while others are constantly trying to get out of debt fast – and usually in hock up to their eyeballs no matter how much money they make.

I’ve preached that financial freedom can be achieved by anybody, regardless of their income level, more times than I care to count.

So what is it that separates the financially free from the financially inept?

Why is it that there are families out there with household incomes under $40,000 comfortably making ends meet and saving for retirement with no debt on the books – or at worst, a single mortgage payment – while others who make millions per year – like Sinbad, Ed McMahon, Mike Tyson, and Stephen Baldwin – have trouble keeping their financial heads above water?

The more I thought about it, the more I realized there is no single trait that determines who will successfully manage their personal finances and those who won’t.

More often than not, it seems to me that people of modest means who exhibit an ability to properly manage their finances have some combination of multiple characteristics.

Here is my list of 10 key characteristics that enable people of modest means to lead a debt-free life…

1. They’re detail-oriented

People who are in a good financial position always pay close attention to their personal finances. They know how much they earn, and they keep track of how much they spend and where every penny goes. Because they’ve got a good handle on the state of their personal finances, they are less likely to buy something they can’t afford.

2. They realize debt is a mortgage on their future

I remember somebody once telling me that debt is a form of indentured servitude, where we end up sacrificing our future earnings in exchange for instant gratification. Financially savvy people understand that, in most cases, such a trade almost always ends up being a Faustian bargain.

3. They’re pragmatic

More often than not, folks who are debt-free are also practical people. Because they are practical, they understand the meaning of value. For example, a car is often looked at merely as means to get from point A to point B, so why buy a Lexus when a Corolla will do? In the same vein, why pay double for designer jeans that will last just as long as the no-name alternatives? Such a philosophy even stretches to the grocery store, where name-brand items often give way to their store-brand counterparts.

4. They’re self-reliant

Most people who work hard to maintain a life of financial freedom take pride in being self-reliant. To that aim, they make sure they always live within their means, and save as much money as they can for a rainy day or when times get lean. (They’re also quick to give when others fall on hard times.)

5. They aren’t addicted to shopping

We all know there are people out there who get a high on spending money, whether they have it or not. While not physically destructive like a drug or alcohol addiction, an uncontrolled shopping habit will make it virtually impossible to remain debt free.

6. They’re patient

People who are debt-free didn’t get there because they were impulsive shoppers, or always looking for instant gratification. If the money for something wasn’t in the budget, then they saved their money and waited.

7. They’re self-confident

Because they refuse to let their self-worth be defined by their possessions, the financially free never feel any pressure to spend money in order to try and keep up with the Joneses. Those who are debt-free understand that their status in life is more accurately conveyed by self-confidence, rather than dubiously deceptive displays of wealth.

8. They realize credit cards are a double-edged sword

People who are in control of their personal finances aren’t afraid of credit cards. In fact, they embrace them. And while the financially savvy understand the incredible benefits that credit cards provide their owners, they also know that if they fail to pay them off in full at the end of each month, they will pay a heavy price. This knowledge fosters a healthy respect that keeps their credit cards from being abused.

9. They believe in personal responsibility

Financially responsible people refuse to make excuses. If they lose their job, they know it’s their responsibility to have a rainy day fund in place – and if they don’t, they’ve got no one to blame but themselves. Short of an unforeseen catastrophic medical issue or natural disaster, they also understand that when it comes to living within one’s means, they are in complete control of their own destiny.

10. They’re not materialistic

The pursuit of expensive toys and other possessions can certainly make life more luxurious. But at what cost? I know it’s a cliche, but most people who are debt-free understand better than most that money cannot buy lasting happiness. As such, they often tend to live simpler lives that focus on the joys of family, rather than the accumulation of material possessions.

This is by no means an exhaustive list. However, the more aforementioned characteristics that a person possesses, the more likely they are to be debt free and living a life of financial freedom. How many of them apply to you?

Stacy Johnson

It's not the usual blah, blah, blah

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  • excellent article…i am always looking for new ways to better my life….loved the article and loved that i am doing all the above… the peace of mind and security in all storms is priceless. people….follow this advise…. i have never been happier…..it can be done.

  • 11.  They remained employed.

  • Anonymous

    your comment is so correct, but
    they also must remain healthy and accident free.

  • 11. They have parents who helped them pay for college.
    12. They graduate college/trade school and still get financial help for a few years to “get on their feet”
    13. They have families and resources to co-sign apartments, mortgages.
    14. They have family money to help them get the necessities in life through weddings, baby showers, wedding
          showers etc.
    15. They aren’t unlucky enough to have been born into poverty.

    • You sound bitter about something…

      I don’t think any of your items apply.  Those with no family money will choose state schools or community colleges instead of private schools.  They will start with smaller, affordable houses instead of renting the best place they can’t afford.  They will be self-relaint and live within thier means, instead of spending “Daddy’s money.”

      • @ Deaver, I totally agree.  When there are helpful articles like this, people are so negative.  My mother did not have money at all to help me and I’m still on track to buy my home cash (small starter home of course), one credit card with a small limit for emergencies, and some savings and I’m 23.  But how I did it was working two to three jobs along with going to school full time! Yeah its hard at times….but it HAS to be done! I think people need to stop accepting defeat and WORK, WORK, WORK! It wont kill ya!

    • Since when are weddings, baby showers, wedding showers etc. necessities? You obviously have some skewed priorities. You sound like you’re in debt up to your eyeballs and are grasping at straws to find blame in everything but your own bad choices.

      You made your choices, live with them and stop the sniveling.

      I left my parents home when I was 17 and never once since then have asked for or received any sort of financial help from them. I’m living debt free, am happy, and loving life.

    • Peter Harren

      I’m a little sad for you. I came from a very
      “average” middle class family. But my dad lost his job while I was in
      high school and has a very hard time finding a job in the 20 years since then.
      I had no college fund in place and if my parents contributed $1000 over 4 years
      to my education I’d be lucky. I paid for college by working, scholarships,
      grants, and plenty of loans.  I got no
      support in buying my house or my car, ever. 
      My mother-in-law and parents to some degree helped a bit with our
      wedding, but that was a fairly modest affair for us.  The reception was in the church hall and my
      wife had maybe a $500 dress if I remember right.  Our honeymoon was in Rome, but we were living
      overseas at the time and Rome was more “local” at the time and we stayed in a
      small B&B hotel in the way off season.

      We’ve spent the last 6 years of our marriage living below to
      well below our means and in cash.  We put
      my wife through a Master’s program in cash. 
      We have the money in the bank to pay off the remainder of my wife’s
      substantial student loans; we just want the money around in case there is an
      emergency with our first son who is on the way. 
      We both drive nicer, but 11 year old cars.  Our mortgage is our only real remaining debt,
      but our house’s value is less than our family’s yearly income and I guarantee you
      I could easily get a mortgage 3-4 times our current one.  We don’t consume much; we gave away, saved,
      or paid off debt with 50% of our income over the last 2 years.

      What’s the point here? 
      It’s not really to brag as you might think.   Yes “luck” and circumstances help; but
      character, modesty, self-control, and a goal are 100 times more important.  People who are just given money rarely really
      succeed, Paris Hilton anyone?  Lotto
      winners are about 4 times more likely to get a divorce and have a 60% chance of
      going bankrupt.  90% of millionaires are
      first generation rich and self-made.  Look
      within yourself before you spew envy.

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