So You’re Debt-Free, Now What?

It’s not a common situation, but it’s one that I know must apply to some of you out there. Debt is the great equalizer, and the overwhelming majority of Americans are saddled with more than their fair share. But there are some who manage to tame the monster of indebtedness. Those people are left facing a variety of paths: What to fund first? College tuition for my kids or retirement? Invest first or save?

If you make few good moves once you reach this crossroads, you’ll ensure you won’t find your way into debt again as easily. It’s always a looming reality, so insulating yourself and your family as much as possible is a great way to defend against future debt.

#1 – Emergency Fund

An emergency fund is vital in an unsteady economy. No one should assume they’re indispensable employees. Everyone is replaceable. It’s a harsh truth, but it’s a reality that we must face in the economy today. Once all your debts are paid off, sock away as much as possible to cover six months of living expenses at a minimum. These days, many experts are recommending you save enough to last you a year. The point is – start saving now.

#2 – Retirement

College is important for your kids, yes. But if you’re nearing retirement age, the biggest priority should be your savings. Beef up payments into your retirement accounts and start looking into ways to diversify your nest egg. Remember, you’re doing your kids a big favor by making sure you have the resources in place to take care of yourself when you’re older instead of relying on them to handle things.

#3 – College

Once you have your emergency fund in place and your retirement savings under control, you can finally focus on throwing money at a 529 college savings plan. In most states, people can contribute up to a maximum of $13,000. If you’re married, you can contribute double that, or $26,000, to the plan. When you do, you don’t have to worry about gift taxes. There’s even a special election that allows you to invest one shot of $65,000.

#4 – Investments

Now is a very unstable time to invest. The stock markets are shaky and individual stocks are a real gamble. You can invest in safe vehicles such as CDs and use a laddering technique in order to maximize your returns. You can also invest in unorthodox vehicles such as P2P lending platforms. You can buy mutual funds. Whatever route you choose to invest in, make sure that you spread your money around as much as possible to minimize your risk.

Once these steps are under control, you can focus on the most important debt you have: Your home. Put any extra money that you haven’t already accounted for onto the principal for your mortgage payments. Work out how quickly you can make it happen, and singularly focus on achieving that goal in the time frame you have calculated.