So, you’ve finished paying off your debt, and you’re finally enjoying that air of being debt free. Well, I’m happy for you! But have you thought about the next steps to ensure that you don’t slide into a life of debt again? Financial blogs continually put out stories, tips, and inside scoops about how to get out of debt, but very few articles get written about what to do after becoming debt free. And while it makes a lot of sense to follow through with a personal financial strategy that will lead you being debt free, it makes even better sense for you to know what to do after paying off your debt.
So, if you are like I was and you are wondering what to do after paying off massive debt, you’ll find this article timely and helpful. Well, let’s get into the nitty gritty with six practical things you can do after paying off debt. Hopefully, you’ll get the hang of it and stay financially free forever!
Increase your Savings!
The very first thing to do after paying off debt is to reevaluate your budget. More than likely, while you were trying to pay off your debt, all your extra cash would have probably gone into paying off one debt or the other, so now that you’re finally debt free, it makes a lot of sense to channel your extra money into something else.
So where do you start? It’s simple; you first have to decide how you want to streamline your savings. Having a rainy day fund is important to eliminate the risk of future debt but taking into consideration, your past spending habits will keep you in check. You have been saving money and have been diligently paying your debt off for a long time, its time to figure out what to do what that extra cash. You may want to plan a family road trip, or go to Vegas with your loved one; perhaps you want to buy some new clothes, or maybe even give your home a new look.
To be effective while saving for a splurge, you’ll have to determine how much you will need to save up while considering your actual savings. Continue to save for the rainy day, while setting some money aside for fun! Keeping your rainy-day fund and your splurge fund separate is key to ensure you don't get into a situation where you need to put something on credit again.
Create a Budget!
We need to go back to the basics, which involves keeping track of your spending while ensuring that you comply with a strict budget. Building a budget that will account for your bills, groceries, gas, extra spending, and savings is key to success. There are so many awesome, free resources out there like Personal Capital or Mint; you can also check with your bank or credit union for budgeting tools that easily connect to your bank account and track your spending, give suggestions and more. Keeping track of your budget will help you move from living paycheck to paycheck and into a more financially independent lifestyle.
Keep Track of Your Finances
It’s one thing to be debt free and another to be financially independent. The mere fact that you’re finally debt free doesn’t mean you’re financially independent. Something that everyone should do is to keep track of what is on their credit report and watch your credit score. Everyone in the United States is entitled to a free credit report from each of the three credit reporting agencies (Equifax, Experian, and TransUnion) once every 12 months. You can request all three reports at once, or space them out throughout the year.
Keeping an eye on your credit score by looking at what creditors are reporting about you is helpful. Reporting discrepancies of what lenders report versus fact can help your credit score improve and verifying all accounts remain in the status you left them in will contribute to maintaining or improving your credit score. Also, by checking your credit report, you can ensure that no one is using your credit unlawfully, which can hugely damage your score and affect your ability to borrow in the future when you're buying your first home or repairing something in your home that your savings can't completely cover.
Open a Retirement Account
Do you want to stack up your savings to a point where you can truly say you’re financially independent? Then it would be wise to open a retirement savings account today! Opening a retirement account will save you quite a lot in the future. In fact, studies have shown that increasing your retirement savings by 5 to 10% can go a long way to ensuring that you’re financially independent.
Many employers offer retirement plans, and some even match a percentage of what you put in! Most retirement plans done through your employer are taken out of your check before you check is taxed, so instead of you being taxed on the full check, you are only taxed on the check after your retirement deduction comes out. For example, if you get paid $1000, and you have a $100 401K deduction, you only pay taxes on $900 instead of $1,000, which means, a larger take home pay for you!! If your employer doesn't offer a retirement plan, you can contact your bank or an investment firm; there are so many options to increase your dollar these days.
Retirement accounts tend to have annual contribution limits because of the tax savings you get, so if you have reached your limit, don't be afraid of opening multiple types of retirement accounts. You can have a 401K through your employer and a ROTH IRA through your credit union and have money in the stock market all working for you at the same time!
Think of Other Alternative Investments
While you’re no longer in debt, have you thought about investing your extra cash? Yes, you heard me right! Remember, you’re only financially free to the degree of income that you have. The more income you make, the more money you have and the more money you have, the more financially independent you are. Having alternative revenue streams, like a side business on Etsy or eBay or investments can help you overcome this obstacle. If you think investing your extra cash might be something you want to give a try, here are a few alternative investment plans that may work for you.
- Consider investing your spare cash into learning how to trade forex or stocks
- Real estate is another lucrative business that would yield a high return
- Peer to peer lending would be another great place to invest.
Set up a Business
When you’re in debt, it can be quite daunting to contemplate starting a side business. Nevertheless, now that you’re finally debt free, a good way to create a new revenue stream is to start that business you have been drooling over the thought of for the past several years. If you are unsure about what type of business to open, or you have never even thought of it, try to think about things you love and ways to turn that passion into some extra cash!
Do you love photography? Start taking pictures of your family or your friend's families, learn Photoshop, set up a Facebook page, and there you go! You have a small, inexpensive business! Or, think about that time when you had to hire that guy and pay him $200 to wash your windows! The money you could have saved by investing in a pressure washer and some industrial window cleaning solution... or the money you'll make by investing in those items!
There are so many avenues online to sell products or services it's incredible how quickly you'll bring in the business! Also, if you're in need of some fresh business ideas, you can send me a message, and I’ll fill you in on a few viable businesses you can give a try today!