Congratulations! You’ve paid off your last debt, and you are now debt-free. The possibilities and opportunities for your financial future are endless. Don’t go on a shopping spree to celebrate; use these tips for life after debt to help you stay on track and live a responsible, fun debt-free lifestyle.
Update Your Budget
Since you no longer have those pesky monthly loan payments anymore, it’s now time to update your spending and savings plan. Update your budget by writing down your current expenses, and subtract that amount from your income. The extra money you now have should be reallocated to accounts and assets that help you reach your financial goals and remain debt-free.
Build Up Your Savings Account
One of the big advantages of having no debt is that you can save more money. Financial advisors recommend having savings to the value of three to six months of your expenses. This fund helps protect your financial stability if you lose your job, your car breaks down, the air conditioner dies in the heat of the summer, or something else happens that sticks you with an unexpected expense. Automate your savings to this fund by establishing or increasing the percentage of your paycheck or a specific dollar amount into a savings account. Avoid getting back in debt by planning and saving for unexpected emergencies.
Increase Your Retirement Savings Contributions
Similarly, now that you have some extra cash, make longer term plans. Some employers offer matched payments on 401(k), 403(b), or 457(b) retirement plans, generally up to a specific amount or percentage. Accelerate your retirement savings by increasing your contribution up to the amount your employer matches. Then, allocate the rest of your savings into another investment option, such as Individual Retirement Accounts (IRAs), mutual funds, or annuities. Consult a financial advisor about the maximum contribution limitations for certain retirement savings accounts and other ways to save for your retirement.
Plan Your Next Big Purchase
Being debt-free doesn’t mean that you won’t want to make big purchases in the future. However, to stay out of debt, take time to plan your next big purchase, and save up to pay for it with cash. You’ve done a great job getting rid of those credit cards and store accounts, so you don’t want to undo it all. Saving for big purchases makes it all the sweeter when you buy that new TV or car.
Reward Yourself Responsibly
You’ve worked hard to pay off your debt, and you should reward yourself. However, don’t blow all of your new monthly wealth or go back into debt. Simply put aside a set dollar amount or percentage per month or pay period to do something special for yourself and your family. If shopping is your thing, remember to set a limit and use cash.
As you enjoy life after debt, remember to give generously, save aggressively, and spend responsibly.
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