Congratulations! You’ve eliminated your debt and now have some extra cash in your account. It’s important to make this money work for you instead of someone else. However, you may be unsure of what your priorities should be. Having a plan in place before becoming debt-free can make the transition easier and help you utilize your money effectively.
If you’re still on your debt-paying journey, creating a plan for your future funds can help you stay motivated. Having a plan before making the final payment allows you to start putting your money to work immediately, without any delay between paying off your debts and investing in yourself.
Take care of yourself first
After making your final debt payment, consider celebrating your achievement. Treat yourself to a nice dinner, a new gadget, or an adventure that you postponed while focusing on your debt. Celebrations are valuable, but it’s crucial to have a clear plan for your money post-debt repayment.
Without a solid plan for your previous debt payments, you might fall into lifestyle inflation and spend all the money without benefiting your future. Instead of waiting until the money is available, review your budget to identify areas that need improvement, such as your emergency fund, retirement savings, and other aspects that can enhance your life.
Take stock
Begin by evaluating your current financial status. While being debt-free or significantly reducing your debt is commendable, did you neglect other financial areas during this process?
Before diving into your future plans, ensure you have the following in place to navigate any financial challenges:
A robust emergency fund
Financial planners generally advise having three to six months’ worth of expenses set aside as an emergency fund. Having this cushion is essential, especially during uncertain economic times, to avoid falling back into debt.
Well-funded retirement accounts
While maximizing all retirement accounts may not be feasible, ensure that your savings align with your retirement needs. Contribute enough to benefit from any employer matches and consult a financial advisor to optimize your financial preparations for the future.
Determine your goals
Once your immediate needs and future financial goals are secured, take time to envision where you want to be in five or ten years. Setting clear goals can accelerate your financial progress and lead you to your desired destination.
Reflect on your aspirations and discuss them with your partner if applicable. If saving for your child’s education is a priority (after ensuring your retirement plan is in order), consider opening or increasing contributions to an investment account dedicated to your child’s future.
Brokerage accounts are versatile for investing, allowing you to pivot as needed. You can designate one account for specific goals, such as your child’s education, while also maintaining a fund for other long-term objectives like a new car or a major trip.
Have some fun
With your goals defined and financial security established, enjoy the freedom of being debt-free. Explore opportunities like hiring a personal trainer, engaging in a costly hobby, or exploring passive income sources without guilt.
This is an ideal time to venture into passive income streams. Experimentation is feasible now that you have the resources and time to explore income opportunities that will support you and your family in the long run.
Consider researching and understanding different investment options, like peer-to-peer lending, local business support, or group investments to diversify your portfolio. Familiarize yourself with various investment types such as bonds, dividend stocks, ETFs, and index funds to identify what suits your financial strategy best.
Final thoughts
Just as a debt payoff plan helps you eliminate debt and progress, an after-debt plan ensures that you are utilizing your money effectively and investing in your future.
Being debt-free allows you to expand and enrich your life, knowing that you have secured your financial well-being and have the freedom to pursue your interests and passions without guilt.
