During your debt pay-down journey, you likely worked on tracking spending and building a budget. Maintaining these habits once debt-free will help ensure that your newfound savings and financial goals are on track.
One of the first places to reallocate your debt repayment funds is into an emergency savings account.
Start a Savings Plan
While your debt payoff journey may have been centered on paying off your debt balances, a large part of personal finance is also about building savings. Many prioritize saving while making significant debt payments, which is acceptable for anyone who wants to stay on track with their financial goals.
However, once you’re debt-free, it’s important to refocus your savings plan and increase contributions to it each month. This will help ensure that you can build up an emergency fund, pad your retirement account and take the first step toward your next big financial goal.
Another reason to increase your monthly savings is that it will help you avoid going back into debt again. It’s easy to fall into the line of thinking that having debt “wasn’t so bad” and go back into overdraft or even use a credit card to buy something you don’t need. Creating an emergency fund and boosting it regularly is the best way to prevent this.
Having a sizable savings balance will also help you cover unexpected expenses in the future, like medical bills or car repairs. In addition, having a substantial savings balance can make it much easier to afford significant life events that aren’t necessarily planned, like a wedding or a new home.
Getting out of debt has helped you put more money in your pocket, and as you start to see your efforts pay off, it’s a great feeling to be proud of. You’ve worked hard to get where you are now, so celebrate your progress with some luxury. Maybe it’s a night out at your favorite restaurant, a weekend getaway, or a new item to add to your wardrobe. Whatever it is, please don’t feel guilty about treating yourself because you deserve it after all the hard work you’ve put in to become debt free. And remember to refocus your budget as necessary so that you can keep the good habits you’ve established. You can even consider using a tracking tool to help you remain on track after eliminating your debt.
Invest in Your Future
You’ve stayed committed to your debt repayment plan, and after years of careful budgeting, you’re finally debt-free. This is a significant achievement, and you deserve to celebrate it! But it would help if you also made a plan for how you will stay that way. It’s easy to get distracted by the excitement of finally reaching your debt freedom goal and neglect other essential financial responsibilities. It’s also tempting to start spending more money, as you no longer have a monthly debt payment eating into your budget. The key to long-term financial success is to continue living within your means and saving as much of your income as possible.
Once you’re debt free, you can use the extra money to invest in your future and grow your wealth. The most common ways to do this are by investing in a 401(k) plan, an Individual Retirement Account (IRA), or a Simple IRA.
These types of investments help you grow your wealth over time and provide a great source of income for your retirement. If you’re not already saving for retirement, it’s recommended that you do so as soon as possible.
Creating a life insurance policy is another great way to invest in your future. This can help protect your family financially if something should happen to you and can be purchased relatively cheaply.
Taking the time to do a complete financial review and reset your goals after reaching debt freedom can prevent you from careless spending, illogical lifestyle inflation, and even a false sense of security that leads to a relapse into old habits. It can also help you ensure that your finances are organized and you have a clear picture of all your assets and debts. This will allow you to take advantage of opportunities that may present themselves and also keep you from straying from your long-term financial goals! The best part? Once debt-free, you can focus on achieving your other financial goals. Catch up on Select’s in-depth coverage of personal finance, tech and tools, and wellness by following us on Facebook, Instagram, and Twitter.
Update Your Insurance
When individuals become debt-free, they are often eager to start budgeting and saving. However, they also need to make sure that they are adequately insured. This may mean increasing their life, health, and auto insurance coverage or ensuring their home is adequately insured.
This is especially important if they drop their coverage while working to pay their debt. Many people have to choose between paying off their debt and keeping up with their payments for other necessities. In addition, individuals who have opted for a debt settlement program must ensure they have enough income to cover their expenses without using credit cards or falling back into debt.
If they are unsure how to increase their income, individuals may consider contacting a non-profit debt management agency like AdvantageCCS for assistance. This can help them develop a realistic budget and find the best way to manage their finances in the future.
While many individuals are motivated to get out of debt, some have trouble maintaining their commitment. This is why individuals need to have a clear plan of action that includes setting short-term goals and celebrating accomplishments. This will help them avoid careless spending and other financial mistakes that can set them back.
Whether they have student loans, credit card debt, or a mortgage, they must be prepared for the unexpected. This means having a solid emergency fund that covers at least three to six months of expenses. If they don’t already have a savings account, it is worth opening one now.
In addition to a savings account, individuals should consider buying life insurance. This will protect their loved ones from the financial burden of their debt if they are to die. Debts are rarely inherited, so individuals must take this step to protect their loved ones in case something should happen to them. Fortunately, life insurance is relatively inexpensive, so this can be done within a reasonable budget.
Make Upgrades to Your Home or Business
Becoming debt-free opens up a lot of opportunities for financial growth. However, you must ensure you do not get too carried away and binge on a lifestyle with your newly found cash flow. This can lead to careless spending and a false sense of security. Instead, use some of your newfound money to upgrade your home or business.
For example, replacing old appliances with energy-efficient models can help you save on your energy bills. This small change can make a big difference and boost your property’s resale value. You may also consider upgrading your insurance coverage to protect yourself and your family in an emergency. Life, long-term disability, and homeowner’s insurance policies are all great options. Finally, it is a good idea to draft a will to ensure that your assets are distributed according to your wishes if anything happens to you.