10 Key Characteristics of Debt-Free People

SONY DSCThe 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 continually struggling to get out of debt — no matter how much money they make.

Financial freedom can be achieved by anybody, regardless of their income level. So what is it that separates the financially free from the financially inept? How come there are some families out there making ends meet with household incomes under $40,000 and no debt on the books — or at worst, a single mortgage payment — while others make millions per year and can’t keep their financial heads above water?

The truth is, there is no single trait that determines who will successfully manage their personal finances and those who won’t. People of modest means who know how to properly manage their finances have some combination of multiple characteristics. Here are ten of the biggest:

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.

They realize debt is a mortgage on their future. 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.

They’re pragmatic. More often than not, folks who are debt-free are also practical people. As such, they understand the meaning of value. For example, they tend to look at cars as merely a means to get from point A to point B — so they’ll refuse to buy a Lexus when a Corolla will do. In the same vein, they won’t pay double for designer jeans that have the same lifespan as the no-name alternatives, and they’re open to buying store-brand groceries.

They’re self-reliant. Most people who work hard to maintain a life of financial freedom take pride in being self-reliant. They live within their means and save as much money as they can for rainy days and lean times.

They aren’t addicted to shopping. A lot of people get a high from spending money — whether they have it or not. And while such a high is not physically destructive like, say, a drug or alcohol addiction, an uncontrolled shopping habit is almost always financially calamitous.

They’re patient. Debt free people don’t achieve that state because they’re impulsive shoppers, or looking for instant gratification. If the money for something isn’t available, then they save and wait.

They’re self-confident. Financially free people never let their self-worth be defined by their possessions. They understand that their status in life is more accurately conveyed by self-confidence, rather than dubiously deceptive displays of wealth.

They understand that 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.

They believe in personal responsibility. Financially responsible people refuse to make excuses. They know it’s their responsibility to put aside funds for unexpected events such as a job loss or unforeseen accident — and if they don’t they’ve got no one to blame but themselves. Short of a catastrophic medical issue or natural disaster, they also understand that living within one’s means goes a long way towards ensuring their ability to control their own destiny.

They’re not materialistic. Yes, the pursuit of expensive toys and other possessions can make life more luxurious. But at what cost? Debt-free people understand this, which is why they 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 of these characteristics that a person possesses, the more likely they are to be financially free. How many apply to you?

Photo Credit: kalyan02

(This is an updated version of an article originally posted on August 30, 2010.)


  1. 1


    Great list Len! I think being able to delay gratification is a key. The one about self-worth being tied to things (cars, boats) is also huge.

  2. 2


    For me, I think being debt-free has a lot to do with how I was raised. I saw what debt and spending could do, and I knew I never, ever wanted to live that way.

    Also, since I didn’t grow up with much, I didn’t have a habit of spending or being used to getting the latest ‘things’. I appreciated what I had, and I still don’t have the desire to spend on something unless it is something I really need. It is all psychological with me I guess.

    • 8


      We have saved a ton over the years by not letting other people set our goals. By knowing how much we have we can portion it out in ways that reflect our values. That is what makes us happy, meeting our own goals.

      Just wondering how people with ADD can approach their finances since they are not detail oriented and get easily distracted. Meds?

      • 9

        Jasonr1085 says

        Whoa wait a minute don’t make such a hasty generalization without fully understanding ADD. I have ADD and I have more saved and more money coming in from investments than anyone I know. I grew up getting horrible grades but eventually learned how to learn in another way. If someone cares about their financial situation, regardless of their learning ability, they can and will overcome any obstacle.

        • 10

          Len Penzo says

          That is really good to know, considering my son has ADD and is really struggling right now at 14 to grasp the importance of saving money.

      • 11

        Manny says

        I have friends that are ADD. Like any other issue, some of them handle finances just fine, so to the point that they drive me crazy with how detailed they are. On the other hand, some of friends that are ADD have a hard time with money, some won’t open their mail. So I would be willing to beat that ADD doesn’t mean you’ll be good or bad with finances.

  3. 12


    11. They have an innate desire to become magicians.

    No? Oh, sorry – guess that’s just me…

    Most of the things on the list apply to hubby and I. Some days more so than others so I guess the word ‘exemplify’ wouldn’t exactly fit.

    I DO love shopping; internet deal shopping which can become quite addictive. Not as expensive as mall-shopping, so you (read: I) tend to buy more. Nevertheless I rein it in pretty well – again, some days more than others.

    And only recently have I struggled with the car as a status dilemma. It USED to be I happily, nay PROUDLY, drove beaters (JUST sold my high school car 3 months ago! 96 Ford Escort), until we acquired a minivan this month. I think I need therapy to fully accept it even though it’s the nicest car we’ve ever owned! Trying to build a relationship…

    A beater is a beater…a minivan is a seperate status entirely.

    Patience? Never have really been good at that – but it’s a work in progress. Kids have helped that character-building quite a bit.

    Nevertheless, in spite of our sometimes severe shortcomings, we only have our first mortgage (which we pay extra on), paid cash for our cars, have steadily growing retirements, emergency and college funds. Not too shabby and the ONLY way to live.

    Oh, and sometimes I hate being practical. Just thought I’d say that.

    Great article!

  4. 13


    I love lists. Mr. BFS and I are 27, make $82,500 jointly a year, and “only” have 6-7 years of mortgage debt left. Your list of qualities are ones we strive for, but we don’t have them all yet. I’d give us a score of 8 1/2 out of 10…

    I’m not addicted to shopping, but like Christa, I do get a rush when I’m looking for the best deal online for whatever we needed or wanted enough to buy.

    We are not patient. Or at least we’re not as patient as I wish we were…if we want something and have the budgeted money for it, I will not spend months looking for the absolute best deal. I will buy it within a week or two. Period. Luckily we don’t want much or we’d be in trouble. :-)

  5. 15

    Scooter says

    I half agree with #8. That kind of assumes that people with no debt tend to use credit cards to make their purchases. Sorry, but that seems a bit of a stretch if you ask me.

    • 16

      Selfmade says

      I have no debt and use credit cards to my benefit by either getting cash back, discounts in retail stores or more recently chrome points for my Harley Davidson. It is about control. If you are able to use it wisely, with self control it can add additional benefits financially. If your self control is not fully trained it can be devastating to your financial goals. It is also safer than carrying cash and I continue to make interest for another 30 days. We all have our vices, so it really boils down to where you stand within your financial strengths and weaknesses. Good luck in your financial goals.

      • 17

        Funmoney says

        McDonalds did a study before they allowed the use of card payments and found people spent about 18% more than with cash. Pain centers in the brain are not activated with the use of plastic. So, paying them off is quite possibly still not saving you money. It might offset any perceived benefit of cash back or points if you’re well disciplined. It would be real interesting to see if everybody adopted that how hard it would be on the Card companies…

        • 18

          Sue says

          Don’t think that example bears up. It’s the chicken and egg thing. I use my cc at drive-thrus IF my bill is going to be substantial. I pay cash if it’s only going to be a few bucks. Got nothing to do with what I choose to spend, rather what I spend determines my method of payment.

    • 19

      RKY84 says

      Scooter. I save up and pay for my cars in cash, and I only have mortgage-related debt. I’ve never had unsecured debt.

      I use credit cards all the time, and have used them for 20 years. I’ve always paid them off in full, on time, every month.

  6. 20


    @Dr. Dean: I started, but then thought better of ranking them – mainly because I was kind of stumped as to which was the most important. I think delayed gratification IS a big one. Personally, I think #2 and #9 would be my #1 and #1A if I were ranking them. Wait… I trust you know what I mean. 😉
    @Everyday: Ooo. That is an interesting take that turns my post on its head somewhat, doesn’t it?
    @Matt: As you should be. :-)
    @Jenna: Interesting! I know that definitely applies to me for big purchases like homes and cars.
    @Christa: “Patience? Kids have helped that character-building quite a bit.” Really? Mine have done the exact opposite! LOL
    @BIFS: I used to be really patient. Now I have a teenage son.
    @Susan: That is definitely me. Add it to the list!
    @Scooter: Maybe you are right. My main point was that most folks who are debt free understand the trouble credit cards can get them into. (I know. So why didn’t you just say that, Len?) Well I did, but I had to get the other part in about the benefits of CCs too because I didn’t want to imply that CCs are “evil.”

  7. 22


    We’re debt-free except for the house and also use one credit card for the cash-back rewards. We also bag a few hundred dollars at the end of the year.

  8. 23


    Awesome list. I think debt-free’ers gain a sense of perspective too. When the goings good, the good save….. This is a big difference with people who keep staying in debt. When one good thing happens they assume it will happen time and time again!

  9. 24


    These are definitely traits that equate to being financially independent. I’d also add that sometimes people learn these traits through trial and error. One can go from financial ruin, learn via their experiences, and make it a habit of living within their means.

    Okay, maybe another trait to add would be a life-long learner. There are definitely some people who never learn, so “learning” would separate those who can from those who can’t.

  10. 25

    Jenna says

    @Len Penzo – I don’t think it has to be a big purchase to notice quality, clothes, furniture, electronics, etc. The list can go on forever.

  11. 26

    Sandy E. says

    I am debt-free, including my mortgage, w/a modest salary and enjoyed reading your well-written article where the characteristics you noted, I possess – and will elaborate because hey, that’s my detail-oriented personality: #1 – I am very detail-oriented, and can tell you on any given day, what the balance is in my checking, savings account, and how much cash I have in my purse (within about $5). #2 – I realize that were I to rack up debt, I would be spending ‘tomorrow’s dollars’ and if I don’t have the money today, how in the hell do I think I’ll have it next month, (tomorrow) when the bill arrives? I won’t. #3 – I’m very pragmatic. Yes, I drive a beater and when I had company for a week this summer, I rented a brand new car since I knew we would be doing a lot of driving, I got a great weekly rate, of course, after checking around. The first 3 days I was aglow w/the smell, feel of the new car, however toward the end of the week, that excitement wore off. My back was hurting because the driver’s seat wasn’t that comfortable, and the alarm system gave us problems. I was glad to return it and get back into my beater that fit me like a well-oiled baseball glove fits a hand, and also glad to know I didn’t have to shell out car payments for that vehicle in the future, or repair dollars either for its maintenance. #4 Yes, saving for a rainy day is automatic each month. #5 No, I’m not addicted to shopping, but when I do it, my spending is aligned with my values, and I shop around for the best value. I stay focused on my core values and determine the things that are really important.
    #6 Patience is a virtue. #7 My self-worth is definitely not defined by my possessions, and the Jones’ might be in debt up to their eyeballs. Besides, their values aren’t necessarily mine. #8 I have a healthy respect and fear of credit cards and have one card. This is not free money. I use my credit card to purchase airline tickets (that I have saved up for – patience is a virture, and for any online purchases. When I do order something online and use my credit card, as soon as the amount posts, gets out of the pending category, I send an electronic payment for it. I never wait to receive my credit card bill, and always pay it in advance. #9 Responsibility is my middle name. Absolutely agree with everything you wrote. Can’t even imagine blaming others or making excuses – that doesn’t even exist in my radar or being. #10 I’ve found that experiences bring me more lasting happiness than material things. Also, instead of collecting designer anything (purses, shoes, etc.), if I’m going to collect something, it would be $1,000 Certificates of Deposit. I am baffled why members of my gender spend so much $ on designer things ??? Being pragmatic, I just don’t get that. There are some things in life that I know I will never understand, and this is one of them. Having said that, I have had no difficulties acquiring attention from the male gender, without any of that designer stuff, if that’s why women buy them??? Again, don’t understand that. What I do know though is that the designers are undoubtedly laughing all the way to the bank.

    Anyway, thanks for your article – it got me thinking. I would add too that I’ve hit my sweet spot where I’ve reached ‘enough.’ Where ‘enough’ is perfect, bringing me contentment which represents that balance, while too much results in diminishing returns. Also, giving is a very important characteristic of mine (spending on others) makes me realize I have more than enough, and brings me joy, over and over, knowing I am continually making a difference in other peoples’ lives. Wearing a pair of designer heels just wouldn’t do that. Thanks again for your article!

    • 27

      Java Programmer says

      Good for you! I have been debt-free since 1998, including mortgage-free, and I specially share with
      you the characteristic of sharing with others and making a difference on other’s people’s lifes.

  12. 29


    @Forest: Great point. Reminds me of the parable of the ant and the grasshopper!
    @LittleHouse: Another good point, Jen! I know several folks who are now diligent savers, but they had to learn the hard way by getting themselves into debt troubles first.
    @Sandy: Wow! I’m glad my article inspired you to share your excellent comments! Your suggestion for renting cars for short periods when the need arises for special occasions is spot on – I’ve done that on a couple occasions myself. Thanks for taking the time to share, Sandy! :-)

  13. 30


    Uh, Len?

    I’m not saying it’s not possible but exactly HOW MANY people do you know who live on $40,000 or less “comfortably”? Because you make it sound like there’s a decent chunk. And I’ve met maybe one or two.

    Granted, my husband and I have health problems (so maybe add “lucky enough to have good health” to your list?) but the most we ever made combined was under $40,000. For most of the last three years, it’s been about $30,000.

    We had health-related debt to pay off, and we were hardly completely deprived, but I wouldn’t classify us as living “comfortably” either. Without the debt, it would have been easier, but you’d have to be a pretty big minimalist to live comfortably on under $40,000 a year in most areas of this country.

    • 31

      iluvcolor says

      Abigail, You have a good point. Unless a couple who makes less than $40,000 annually has a paid for home with low property taxes, it would be difficult to live comfortably. That said, it doesn’t mean they live unhappily.

    • 32

      stacy says

      My husband and I live on $43,000 a year and do so quite comfortably. We have no debt besides our mortage, save 15% of our income for retirement, have 4 months of living expenses in an emergency fund, drive beater cars and helped our son out by giving him $20,000 for college. Now we are focused on paying our mortgage down faster. I cook from scratch, we don’t eat out more than 4 times a year and we focus our spending on high quality goods that we actually NEED. Not things we just want or “would be nice” type items. Much of the time we purchase things second hand.

    • 33

      Jen from Virginia says

      I’m one of them, Abigail. My story is featured in his $40K Challenge (at the top of your screen). Since that was written last year, I’ve become debt-free with the exception of my mortgage and have also saved $6,000 since Jan in my emergency fund. And I’m a single mom to 2 boys (about to turn 10 & 12 in mid-Sept) to boot. It can be done. :)

    • 34


      Abigail, your last phrase “in most areas of the country” raises an important point. There are many areas in the United States where a family can live quite comfortably on less than $40k a year, they just usually aren’t in large metropolitan areas near the coast. I live in a small city in the Midwest, and the expenses for our family of 6 has hovered between $20k and $25k for the last few years. Yes, we 6 are healthy with no debt, but our expenses are way below $40k, too (I’m Ruth from Kansas, featured in Len’s $40k Challenge).

      More importantly, though, is that IT CAN BE DONE! I don’t know the exact number of us out there who live on less than $40k a year, but we are very, very far from being the exception. Best wishes to you!

  14. 35


    Awesome qualities Len. This is a great list to refer to every once in a while to make sure we are doing what we can to get out of debt, or if we’re lucky, remain debt-free. My favorite is patience. It’s so darn hard to be patient when a potential purchase looks so enticing.

  15. 36

    Steve from Maryland says

    52…..debt free….including no mortgage… town house value $385K….$575k in tax def. savings…another $1m in cash and equities…… I do have a 24ft boat – 14 years old in excelllent shape…….and just broke down and bought a used 2008 Infiniti G35…….because I gre to hate the turning radius of my 2002 Altima.

  16. 37

    Barney says

    I have been debt free for over 50 years, retired 14 years, spend winters in the sun, have all the toys and never made big money.

    two rules in addition to that list which is great.

    – do I need the item or just want it. More often it is the latter and we skip buying

    – Always pay yourself first. Consider yourself as a debt and monthly put away 10% of your income in the bank, RRSP, 401k etc. This is not an option but a necessity.

  17. 38


    @Abigail: The number of people I know is really irrelevant to the conversation. Whether I know a dozen people or a thousand, it is anecdotal evidence. I haven’t taken a scientific poll, but I guarantee you the number is not trivial. There are plenty of households out there that successfully manage to spend less than they earn each week. Regarding your statement, “you’d have to be a pretty big minimalist to live comfortably on under $40,000 a year in most areas of this country.” I completely disagree. That may be true in the big metropolitan areas, especially the ones on both coasts of the US – but it’s very doable in the rest of America (especially in the flyover states).
    @Andrew: Patience is a virtue, my friend!
    @Steve @Barney @Lynn: Thanks for sharing and showing that being debt free is very achievable!

  18. 39


    Great List.

    I think #11 should be THEY ARE HARD WORKING. I can’t say I’ve ever met a financially savvy person who was a lazy couch potato. They mow their own lawns, learn new skills as their hobbies, do many things themselves.

  19. 41

    Russ says

    Context: I’m male, 33, unmarried, >$100K in savings, earn about $100K a year.

    1) I wouldn’t call myself detail oriented. In some areas, sure, but when it comes to finance I just rely on Yodlee.

    2) I wouldn’t phrase it as ‘a mortgage on my future’. My only debt is my mortgage, but when I had credit card debt I didn’t think of the long-term ramifications. I just don’t like paying interest.

    3) Generally I’m pragmatic, but not in the areas listed. I’d rather have a Lexus than a Corolla, and rather have a pair of Nudies than a pair of Walmart jeans. I’m willing to pay for quality in certain areas.

    4) Yes I’m self-reliant, though I’m not especially quick to give.

    5) Yep.

    6) Yep.

    7) Yep.

    8. Yep.

    9) Yep.

    10) Nope. I like buying nice stuff, I just don’t do it indiscriminately. The words ‘simpler lives that focus on the joys of family’ make me *cringe*.

  20. 42


    We are almost there, except for the car part. That is my husband’s addiction and it is a costly habit. But he is slowly turning around. Every thing else on the list is me – the practical engineer.


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