Wondering what to do now that you are debt free?
Getting debt free is a great financial goal, but we shouldn’t stop there. The next steps are really where we benefit from the hard work of paying off all our creditors.
Once we are no longer burdened by monthly payments, then we have the freedom to start doing wise things with our money and living life to the fullest!
This is the point where we can begin to get ahead in our personal finances and in life. Having a clear direction will determine whether all the hard work meant something or not.
Even if you aren’t debt free yet, but are working in that direction, it is a good idea to start formulating a solid plan for moving beyond the basics.
Debt Free Now What: Ideas for the Next Steps
Chances are if you are debt free, then you know and follow Dave Ramsey. However, now is a good time to review the 7 Baby Steps from his book The Total Money Makeover. My wife and I have been following his guidance for over three years and it is really paying off for us.
We paid off $28,000 of debt in about 20 months while my wife stayed at home to raise our children. It is incredible to be debt free except for our mortgage, but we certainly have goals beyond this step.
Our first goal after becoming debt free was to complete our emergency fund of 3 to 6 months of living expenses. We intentionally chose to keep this on the lighter side, but still feel comfortable we are covered. For most, this step is a given and usually only takes a few months after paying off that last debt to complete. Don’t lose your intensity until this is done!
Moving beyond the basics is where we are headed now. Here is a list of some of what we are working on. I hope these ideas will help you to formulate your own goals for what to accomplish once you are debt free.
1. Start Socking Back 15% of Household Income for Retirement
I do not want to wind up eating ALPO for dinner when I grow old! Therefore, I’m investing for my retirement. I’ll admit that 15% is a pretty steep amount, but we slowly worked our way up to this level of savings. The gradual approach was a lot easier than trying to do it all at once. Of course, you can never start too early. The sooner you start saving for retirement the better.
2. Begin College Fund for the Children
Last year, I used a good chunk of my annual bonus as the foundation for my kids’ college fund. I’m also contributing a small amount monthly to this fund. Fortunately, my daughters are still pretty young so I have some time to let this money grow. I consider this an important priority. I definitely want my girls to have the opportunity to attend college or another form of education if they so desire.
3. Save to Pay Cash for Newer Cars
I drive a 1997 Ford F-150 that still runs like a champ, but I know that eventually it is going to need to be replaced. Rather than borrowing the money to buy something newer, I’m saving cash to buy what I want when the time is right. Even then, I won’t be buying something brand new. I’ll probably buy a vehicle that is 2 to 3 years old with low mileage. I’ll let someone else take the big depreciation hit that occurs when you drive a new car off the lot. If you are in the market for a vehicle, then please check out my frugal car buying guide for a lot of fantastic tips.
4. Give More Generously
One of the motivators for my wife and I to get debt free was so we could help others. We want to live below our means so we can give generously to our family, church and worthy charities. The vision of being able to help in more profound ways really did drive us when we were living on rice and beans to pay off our debt. Now that we’re debt free, it is fun to give to others and see the great results!
5. Work Towards Paying Off Home Mortgage Early
I mentioned earlier that we are debt free except for our mortgage. We do still owe on our house, but the good news is that we are no where near being upside down on our loan. In fact, we have quite a bit of equity in our house. We bought it at a good price and the housing market where we live hasn’t tumbled like it has elsewhere. We will easily have our home paid for in the next five years, but I’d like to see that happen even sooner if possible so we can reap the benefits of paying off our mortgage early.
6. Travel Abroad and Live More Adventurously
Last, but not least, one of our goals is to have the funds to travel more often. We love going to new places and exploring the world, but this takes money. In addition, we want to take our daughters with us to countries outside the United States so they can see the diversity that exists around the world. We think it is very important in order for them to become well-rounded individuals. Fortunately, I believe being debt free is the perfect way to ensure we’ll be able to do this.
Make Your March to Debt Freedom Really Pay Off
Without a vision for the future, you may be tempted to fallback on your old ways of spending more than you earn. It would be a pity to let all your hard work go down the drain! Make sure you are looking beyond just getting debt free to building your net worth and living out your dreams!
Photo by AMagill