Being debt-free is important to most Americans, and many people consider it part of the American Dream. A Credit.com survey found that twenty-three percent of respondents said that being debt-free is the American dream. According to the survey, 80.7 of those surveyed think that it is very or somewhat likely that they will live debt-free.
However, many Americans are deeply in debt, so if you are debt-free, you are doing well. Being debt-free is a huge accomplishment, but unfortunately, your goals shouldn’t end there. If you are debt-free, you should be taking more steps to secure your financial future. Hopefully, you have already been saving for your future, but if you determined that paying off debt was more important, now is the time to start saving. Here are five things you should focus on once you are debt-free.
1. Build up your emergency fund
If you pay off all your debt, you should prioritize a hefty emergency fund. This is something that you should focus on even if you still have debt, because if you don’t have an emergency fund, you may end up using credit cards when a big problem comes along. Not having an emergency fund can seriously affect your finances even if you are debt-free, because if a big enough financial emergency comes around, using your credit cards without having the money to pay them off can quickly put you back in debt. How much you should save will depend on your own personal finances, but you should try to have at least enough to handle six to eight months worth of bills — and more, if you can. Even you are debt-free, you should usually focus on your emergency fund first.
2. Save for retirement
You should start saving for your retirement as soon as you start working, but once you are debt-free, this should be one of your primary focuses. In addition to investing in any plans that your employer matches, you should also consider trying to bulk up your retirement savings by making smart spending choices. Once you are debt-free, you should have extra money to contribute to retirement, so start contributing more each month. Also, if you have money to contribute for the first time in your life, consider meeting with a financial planner who can discuss different retirement savings methods with you.
3. Determine the next step in your career
If you were seriously in debt in the past, it may have limited your career options. You may have had to stay at a job you hated because you needed the money, or you might not have had the extra funds necessary to go to college or to pursue an advanced degree. Once you become debt-free, your options open up. You can consider taking night classes in order to have the education you need for the career you want. While you might have to sacrifice some of your discretionary funds now, you will hopefully get that money back — and more — if you choose your career or advancement wisely. Being debt-free also gives you the opportunity to consider moving for a promotion, or looking for jobs in another area, which you might not have had if you were stuck in debt previously.
4. Make smart financial decisions
Being debt-free is excellent, and if you have achieved this state, you probably worked hard to get there. In addition to having an emergency fund, you will need to keep making wise financial decisions once you are debt-free or you will end up back in debt. As tempting as it can be to use your newly available cash, it isn’t wise to spend it frivolously. Once you have an emergency fund and your retirement savings is in control, you should start thinking about using your extra money to invest in other ways. Stocks might be a good choice, but you can look at other options too. It is a smart idea to have savings in reserve that you don’t use regularly, in addition to your retirement savings and your emergency fund.
Further, you should set up a new budget now that some of your monthly income is freed up because you are no longer paying off debt. If you don’t set a new budget, you risk spending the money regularly without knowing where it went.
5. Have some fun
Now that we got point number four out of the way, we can talk about the fun that you deserve. If you have worked diligently to pay off your debt, it really is okay to have a little fun. Whether you have been dreaming of a vacation, or you have been wanting to make a big purchase that you couldn’t afford previously, you should reward yourself for your hard work. This needs to be done within reason, of course; you probably shouldn’t go on multiple vacations or purchase a new car, but if you want to take a trip before you buckle down and start a regular budget to incorporate your extra money, then you should be fine to do so. Make sure though that you have an emergency fund first, and that your retirement savings is where it should be. Your vacation can wait if your emergency fund is lacking.
Also, now that you have extra money each month, budget a small amount for entertainment or fun activities. The key is always to be reasonable; you don’t have to miss out entirely in order to save for the future or even to become debt-free.