Reaching the point where your debts are fully paid is indeed an essential accomplishment in the journey towards financial independence. It’s undoubtedly a relief not having to worry about monthly payments or constantly trying to earn enough to pay off what you owe. But what happens after you’ve cleared your debt?
The journey to financial autonomy doesn’t end with clearing debts. Once your debts are paid, it’s crucial to establish a solid financial plan to grow your wealth and to prevent future debt. Thus, we’ve outlined ten steps to follow after becoming debt-free.
KEEP BUDGETING
After going through the hard process of clearing your debt, you might feel like splurging. While appearing harmless, lack of budgeting could quickly lead you back into debt or hinder your financial growth, like purchasing a house or creating a solid investment portfolio.
BOOST YOUR EMERGENCY FUNDS
An emergency fund should be your priority after becoming debt-free. This fund is a dedicated savings account to protect you from falling back into debt in case of emergencies. Aim to save at least three to six months of your income. The larger this fund, the better your financial preparedness for emergencies.
ENHANCE YOUR RETIREMENT SAVINGS
We strongly recommend prioritizing retirement savings. Once your debts are cleared, you can channel the extra funds to your retirement savings. Remember to increase contributions whenever you earn more.
REVISE YOUR FINANCIAL PLAN
After ensuring you’re covered for future unexpected events, it’s time to revisit and revise your financial plan. Caution should be exercised to avoid poor financial habits or reckless financial decisions.
CONDUCT A CREDIT CHECK
Routine credit checks are a part of financial responsibility. Therefore, make sure you review your credit report annually to ensure no missed payments.
KEEP YOUR CREDIT CARDS ACTIVE
An active credit card contributes to a healthy credit score, especially if the card has been in use for a while. Maintaining a reasonable balance can also enhance your credit score and improve your eligibility for loans, mortgages, and other financial services.
INVEST IN YOUR CHILDREN’S FUTURE
If you have children, consider starting a savings plan for their college education. A 529 College Savings Plan is a good starting point, as it allows tax-free growth and tax-free withdrawals for college expenses.
BUILD YOUR WEALTH
Being debt-free, having an emergency fund, and growing retirement savings create an opportunity for you to invest in higher risk, higher reward financial products.
SEEK PROFESSIONAL ADVICE
Investment decisions should be made after consulting with financial advisors or those experienced in the industry. Part of this includes cultivating a strong social network within your desired investment circles.
REWARD YOURSELF
Giving yourself a reward can be a good motivator to remain debt-free. The reward can be a low-cost token or reminder of your financial achievement. Always make sure that the reward is within your budget.
MAINTAIN A DEBT-FREE STATUS
Congratulations on freeing yourself from debt! Ensure you remain debt-free by sticking to the healthy financial habits you’ve cultivated. Continue to budget rigorously and make use of all financial instruments at your disposal. Avoid falling back into indebtedness by staying vigilant and responsible.
