Literally, debt is nothing but a four-letter word but at the same time it also means that you owe money. Most Americans have a dream of living without debt but with the lifestyle that they’re presently leading, it is least likely that they’ll be able to achieve this dream. Yet, this dream is nearly possible for everyone who is ready to adopt a strictly disciplined life that won’t lead them to financial ruin. Follow the simple tips that a family should take into account immediately after the members get out of debt.
- Start saving in an emergency fund: Nowadays, every household bears a huge amount of debt where almost every member owes a substantial amount on their credit cards. However, once you repay your debt, the first thing that you should start is saving in an emergency fund. While some people agree that all those who are already debt free have an emergency fund in place but actually it is not so. Emergency fund doesn’t mean the money that we have in safe stock; rather it means the money that we can withdraw as and when we want.
- Start contributing money to the 401(k)s: It is pretty obvious that when you’ve been drowning in high interest credit card debt, you won’t be having enough money to contribute to the 401(k)s. But now that you’re done with your debt, you should immediately start contributing money to your workplace retirement funds. If you’re a family of 4, all of you should maximize your contributions, irrespective of the employer’s match.
- Upgrade your lifestyle: Although you might be too surprised to know about this point as this actually advises against paying off debt but it is not so. When you plan your finances, you should be able to upgrade your lifestyle a little bit. However, don’t be overexcited to lead a life way beyond your means as you should also keep your retirement in mind.
- Automated investments: You must have had an acquaintance with automatic debt payments and it should have helped you simplify your finances over the years. Now that there is no more debt burden, this will be the right time to put the surplus funds to appreciate the total amount. The low cost index funds can be usually recommended as an investment option that can also be made automated.
Just like you always worried before paying off your debt, planning what to do with the extra money when you’re already debt free is also an important decision. Don’t waste years of effort due to reckless spending.