Paying off your debt is a major milestone in achieving financial freedom and one of the most satisfying feelings you’ll ever have. Just imagine not having to stress about monthly payments and grinding your way to make enough money to write them off. But what is the next step after you become debt free?
Getting out of debt is one of the first steps in attaining true financial freedom. So It’s important to have a solid financial plan in place after you are out of debt to build wealth, and avoid getting back in debt.
Below we will look at ten steps to take once you have paid off your debt.
You have worked hard to get yourself out of debt and it is tempting to become carefree with your spending and budgeting. You may not want to keep worrying about money, but if you stop paying attention to how you are spending your money then you may end up back in debt. Or you may prevent yourself from continuing to achieve your financial goals, such as buying a home or building a solid investment portfolio.
Increase your emergency fund
Building an emergency fund should be one of the first things that you should prioritize, especially after you have become debt-free. An emergency fund is a savings account specifically dedicated to preventing you from falling into debt in the event of an emergency. You should aim to save at least three-six months should you lose your main source of income. Since there’s no way to determine how much a future emergency will cost, then the bigger your savings are the more financially equipped you’ll be.
Increase Your Retirement Savings
Another financial goal that we highly suggest is prioritizing retirement savings. When debt pay off was your focus, your retirement savings got little attention. Now that you’ve paid off your debt, you can allocate that extra money to your retirement fund. Remember to increase your contribution each time you get a raise, as well.
Update your Financial Plan
After making sure that you are fully covered for any future eventuality (both good and bad), then you can move on to refresh your financial plan. It’s only human nature to transition to a more comfortable life whenever possible. However, doing so without a plan can develop bad spending habits or lead to potentially irresponsible financial decisions.
Run a Credit Report on Yourself
Knowing where you are in terms of your credit is due diligence that you should perform every year. Even if you think you’ve paid off all your debts, you should still conduct one to ensure that you didn’t miss any payments.
Keep Your Credit Cards Open
Keeping your credit card open will help you maintain a healthy credit score, primarily if you have used the cards for several years. Furthermore, you should keep a decent amount on these credit cards to boost your credit score.
A person who has a good credit score has better chances of securing loans, mortgages, and other financial services. Your credit score may also affect how landlords, employers, and insurance companies will transact with you.
Invest for Our Kid’s Future
If you have children, consider putting some money aside for their college years.. A great starting point for us was with a 529 College Savings Plan. This tool allows you to invest money for your kid’s future college expenses and have it grow tax free. Also, the money will not be taxed when it’s taken out for college use.
Begin Building Your Wealth
Now that you’re debt-free with an established emergency fund and retirement savings, you can finally consider financial products and other investment options with a higher risk level yet also with a higher earning potential.
It would be helpful to hire a financial coach or get advice from people who already made it big in the industry where you want to build your wealth. Of course, this also entails that you develop your social network and get into certain circles.
One of the things that can help you get motivated to pay off your debt is the reward that you will give yourself. While people usually have different tips that they want, never forget to fulfill the promise you’ve made for yourself.
The reward often doesn’t have to be fancy or expensive. You may even prefer that it’s something you can keep as a token or a reminder of your financial accomplishment. However, don’t go overboard on your spending and buy only things well within your budget.
Staying Out Of Debt
You have done a great job of becoming debt free! Make a commitment to yourself that you will avoid consumer debt at all cost. You must remember your mindset when you were working so hard to get out from under that burden. Keep up the best practices you already have in place. Do not stop budgeting and utilizing those sinking funds. Those habits will continue to benefit you after you have paid off all that debt. It is essential to stay responsible and vigilant to ensure that we don’t fall into the grips of debt again.