The Way of No Debt

Leo Babauta says he began from a place of heavy debt, unpaid bills, and cash shortages, then changed course by looking directly at the problem, reducing expenses, making a spending plan, building an emergency fund, paying debts one by one, renegotiating with creditors, and finding ways to earn more. After that, he stayed out of debt.

Reading notes

#

• He was in severe debt in 2005, with five kids and little money between paychecks.
• He avoided bills and collection calls until the situation became impossible to ignore.
• He describes taking the bills out, listing all debts, amounts, and minimum monthly payments in a spreadsheet.
• He says spending had to stop before healing could begin, because expenses were at or above income.
• He cut many costs, including cable TV, a car, magazine subscriptions, lattes, movie outings, nonessential purchases, mall trips for entertainment, and convenience food.
• He made a spending plan, with automatic payment for most bills and set categories for discretionary spending.
• He started an emergency fund.
• He paid debts off one at a time and renegotiated with some creditors.
• He found other ways for the family to have fun.
• He increased his freelance income and later earned more by starting the blog and selling his first ebook.
• After getting out of debt, he says he stayed out and has not been in debt since.
• He then kept living frugally, built the emergency fund to a six-month cushion, and began investing in index funds and tax-advantaged accounts like IRAs.
• He now uses credit cards only when he can pay them off every month, bought his last car used with cash, has no mortgage, and spends less than he earns.
• He says this reduces financial worry, avoids interest, and leaves him lighter and less tied down.