Did you just complete a big debt payment? Whether you paid off student loans, credit card debt or another debt, you’ve reached a financial milestone that’s worth celebrating.
But what comes next? If you don’t have other high-interest-rate debts, there are several ways to use your new financial freedom to set yourself up for even more success. Consider these tips to get started.
Bolster your emergency savings fund
Now that you’ve climbed out of debt, give yourself the wiggle room to stay out. You never know what life may throw at you, but a well-funded emergency account can offer financial stability even in uncertain times.
Not sure how much to contribute to your emergency savings fund? That depends on your unique situation, but it’s considered best practice to set aside enough for three to six months’ worth of living expenses if you’re still working. If you’re retired, aim for three to six months of living expenses for emergencies and about 12 months’ worth for everyday spending, adjusted for outside sources of income like Social Security and pensions.
Build wealth after paying off debt
With debt payments in the rearview mirror, now is a good time to set yourself up for the future. Build your retirement savings by increasing your contributions to an Individual Retirement Account (IRA) or your company 401(k) plan, both of which offer potential tax advantages and long-term compound savings. Worried about contributing to an employer-sponsored plan? Know that even if you change jobs or retire, you can take that money with you.
Identify new financial goals
Though you’ve taken a big burden off your plate, you probably still have other financial objectives to shoot for, such as making home improvements, preparing for a move or saving for your child’s education.
Identify and prioritize these objectives so you know where and when to allocate your newfound disposable income. This will help ensure that you use your money intentionally to achieve the goals that are most important to you.
Once you’ve identified your new financial goals, you can build a budget that helps keep you on track to achieve them.