Debt is all too common in many of our lives. Unfortunately, becoming debt-free becomes more difficult the more comfortable you are with debt and accept it as a constant in your life. Instead of becoming complacent and living the rest of your life in debt, take action. Your quality of life deserves to no longer be affected by your debt!
5 Tips on How to Build Wealth after Paying Off Debt
To pay off your credit cards and loans as quickly as possible, you can use a tool, such as a loan payoff date calculator, or a debt management strategy, such as the debt snowball or debt avalanche method. No matter which route you choose, start by changing your perception of debt from a constant part of life to an emergency that needs to be addressed.
Once you have managed to get out of the red, you may be tempted to live the “good life,” i.e, enjoy nice meals, go on luxury vacations, or perhaps even quit your job. But before you start making those life changes, ensure you’ve got a solid foundation that keeps you debt-free forever. Here are five things you need to do once you’re out from under debt so you’ll permanently stay that way.
1. Start a retirement account
Now that you’re out of debt, it’s time to think about what your future life will look like. Planning for your retirement is smart at any age but the earlier you’re able to start, the better. If you haven’t made retirement a priority yet, start by using the money you allocated to your debt and reallocate it to a retirement fund. You may be eligible for a 401k program where your employer may match whatever you put into a retirement account up to a certain percentage. Take advantage of this free money.
If you’re not employed by a company that offers this, you can still set up retirement accounts for your financial future. Look into whether an IRA, Roth IRA or SEP would be most beneficial for your situation and begin contributing to it consistently. Do this and you’ll have money set aside for when you’re no longer able or willing to work.
2. Expand your emergency fund
An emergency fund is a critical part of a financially stable life. If you haven’t started an emergency fund, set up a dedicated savings account that’s reserved for times when your income takes a nosedive. There’s no set amount for what’s best when it comes to an emergency fund. Most experts believe that you should have a minimum of $1,000, and ideally anywhere from six months to one year’s worth of expenses. Whatever your emergency fund looks like now, start taking some of that money that used to go toward paying off debt and allocate it toward building up your emergency savings.
3. Automate your finances
The less you need to worry about your bills, the better. Now that you’re more proactive with how your money is spent, try automating your bill payments and investments. Not only will this ensure that your bills are always paid on time, but also it frees you from having to worry whether your accounts are in good standing.
Start with one regular bill, such as a utility, set up autopay, and then track it for a few months. Once you’ve established a routine with your utility bill, automate another bill and track that. The goal is to automate your payments one at a time so that you’re never caught off guard or have a payment bounce. Once you’ve set up auto-pay for your bills, move on to automating your investments. When you’re fully automated, sit back and relax; you’ve earned it!
4. Keep track of your spending
You may have gotten into debt before because you spent more than you earned. To prevent this from happening again, stay on top of your spending habits. If you start to notice a lifestyle creep that gets you closer to living outside of your means, take steps to stop it from getting too far out of control. Financial stability requires ongoing attention, so don’t get complacent or sloppy with your spending habits, or you might end up right back where you started.
5. Stay out of debt
You’ve accomplished a huge milestone, so celebrate it! Once you’re debt-free, take a moment to appreciate how it feels and what the world looks like now. You may feel lighter, less stressed, and happier because you’ve no longer got the weight of debt on your shoulders. Remember this feeling so that you never end up under that weight again. Your future deserves a bright outlook, and the less you have to worry about debt, the better off you’ll be financially, and mentally.
The bottom line:
Living a debt-free life gives you access to new opportunities. You can begin to build wealth and live a more comfortable life instead of just focusing on how you’ll manage your debt. Once you finally get out from under that burden, use these five ideas as a way to ensure you’re never drowning in debt again.