Life After Debt: Take These Next Steps for Long-Term Financial Security
Life After Debt: Take These Next Steps for Long-Term Financial Security
Paying off debt is a major step in obtaining financial security, but what’s the next right step toward that goal? Read on for actionable tips to help create a solid financial plan that will keep your finances trending in the right direction.
Keep Budgeting
Even when you’ve paid off every last dollar of debt, it’s important to stay on a budget. You might be tempted to relax your budgeting, or stop budgeting all together, but if you continue to pay attention to how you spend your money, you will avoid ending up back in debt. Staying on a budget will also keep you on track to achieve bigger financial goals, such as saving for a down payment on a house or building a strong investment portfolio. This isn’t to say that you can’t tweak your budget so that it better reflects your debt-free financial position, but you don’t want to stop budgeting completely.
Boost Your Emergency Fund
After you pay off debt, you typically have some extra money each month. Use these funds to cushion your emergency fund. Experts typically recommend having at least six months of living expenses set aside in an emergency fund. This includes rent/mortgage payments, monthly bills, groceries, insurance, and basic costs of living. If you haven’t achieved this yet, this could be your next big financial goal. It’s a vital one, too, as emergency funds serve as insurance policies in the case of an unexpected financial emergency.
Build Up Your Retirement Contributions
If you slowed down your retirement contributions while working on getting out of debt—as many people do during their debt-free journey—you can now work on building those contributions back up. Aim to contribute 15% of your income to a retirement account. If your workplace matches 401(k) contributions, it’s a good idea to contribute at least that much to your account. If you max out your 401(k), think about opening a traditional IRA or a Roth IRA.
Make a Blueprint for Long-Term Goals
Now that you’re debt free, and you likely have some extra money, it’s a good time to think about lifelong financial goals. Make a list of long-term goals and create a monthly savings plan to help you reach them.
Start Investing
Now that you’ve paid off debt, it’s an ideal time to start building your investment portfolio. If you don’t know where to begin, it’s best to start small. Do some research to learn about mutual funds and the stock market. It’s also a good time to hire a financial advisor to help set you up on a path to wealth building.
Enjoy Your Debt-Free Life
After you make plans to build up your emergency fund, cushion any retirement funds, and begin investing to build wealth, don’t forget to enjoy the life you’ve worked for. Becoming debt-free puts you in a position to take advantage of your newfound financial freedom, so you can plan to take your dream vacation or build your dream house. Just remember to stay cognizant of what got you into debt in the first place so you don’t find yourself in the position of taking on debt again.
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