When you’re focused on getting out of debt, it’s easy to get caught up in the process and not think about what happens afterward. But, it’s necessary to establish a plan once you’ve eliminated your debt, or else you’ll slip back into the cycle again. Below are crucial steps you should take after becoming debt-free:
Organize your finances
Preparing for your new financial future starts with organizing your finances. The easiest first step is to automate your finances. Put any recurring bills, like your cell phone, electricity, or credit card on auto-pay, so you don’t miss a due date. You can even automate your retirement account and emergency savings contributions.
Now’s also the time to organize any financial paperwork you may have neglected while paying off debt. Sift through papers and shred anything you no longer need, like old cable bills. Keep only the most recent copies of items, like account statements or insurance policies. However, one exception to this rule is tax returns, which you should keep for at least three to seven years.
Build a solid emergency fund
Having a solid emergency fund covering at least three to six months of expenses is crucial—and something you may have neglected to save for while paying off debt. Now that you’re debt-free, it’s time to get back on track towards saving for the unexpected.
You may need to revisit your goals and figure out how much you should have saved in case of an emergency—and if you don’t have a savings account for unexpected expenses, you should open one now. The bigger your savings are, the more equipped you’ll be to financially handle an emergency (and avoid falling back into debt).
Continue budgeting
After spending months (or even years) sticking to a strict budget to pay off debt, it can be exciting to have extra cash—it can also be tempting to stray from your budget. But, if you stop budgeting entirely, you may become neck-deep in debt again.
With more money on hand your monthly income has changed, which means your budget should, too. Take the time to reevaluate your budget and see how you’re spending or where you can cut expenses.
Contribute to a retirement account
The sooner you start saving for retirement, the better—but it’s never too late. If you haven’t started saving for retirement, look into an employer-sponsored plan, plus additional options like a Roth IRA. If you’re self-employed, look for a SEP IRA, a Simple IRA, or an individual 401(k).
The most important thing is to be consistent with your contributions. If your employer offers matching, try to take advantage of that. Don’t touch your retirement fund until you reach retirement age, or else you’ll face tax penalties.
Start saving for major purchases
If tackling debt was a motivator to start saving for a home or a car, you’re one step closer to achieving that dream. Establish a separate savings account to reach your goal, and start contributing—you’ll get there before you know it! If you’re a first-time homebuyer or are applying for a car loan for the first time, Georgia’s Own has options to guide you through the process.
Review insurance coverage
You may have been skating by with the bare minimum insurance coverage while trying to pay off debt. Now that you have more money, you may consider increasing your insurance coverage. For example, if you don’t have life insurance coverage, you may want to look into that. Depending on your age, you may also want to consider additional coverage, like long-term care insurance if you’re in your 40s.
Refresh your financial plan
After making sure you’re covered for any future events (both good and bad), you can start refreshing your financial plan. As previously mentioned, now that your income has changed, your financial plan should change, too—your financial plan from two or three years ago may not work anymore.
Take the time to assess your financial goals and see where you should reevaluate. Start looking at your short-term goals and decide where you are with meeting them. If you’ve met them (or are close to meeting them), you may want to adjust them to your current financial circumstances.
Consider investing
Now that you’re debt-free (and if you have an established emergency fund) try diversifying your investments. You can consider financial products and other investment options with a higher risk that have higher earning potential, like stocks, bonds, or mutual funds.
If you’re new to investing, consider working with a financial planner. Georgia’s Own offers investment and retirement services to help you get on track and make the right choices when it comes to your money—and you can meet with one of our financial planners at no cost and with no obligation to discuss your options.
Treat yourself
Being debt-free is an incredible feeling, so it’s only appropriate that you celebrate! Having a healthy financial plan is knowing when to be disciplined and when it’s okay to treat yourself. Have a party or take yourself to a fancy dinner—you deserve it after putting so much work into reaching your goal of becoming debt-free.
