What should you do after you clear your debts?
It is very easy to set a goal when you’re in debt — the goal? CLEAR YOUR DEBT.
After the debt is gone however, what should you do?
My answer would be to put the same amount you put towards your debt, but into savings.
Sounds harmless enough right?
ALL THE WAYS YOU CAN SAVE YOUR (FORMER) DEBT REPAYMENT MONEY
There are lots of different places you can save your money:
- Retirement Accounts (U.S.: 401K / Roth IRA or Canada: RRSP / TFSA)*
- Education Accounts (if you are sure you want to go back to school in the future – Canada: RESP*)
- Emergency Savings / Float until the next payday – Just having a buffer is nice
- Vacation Fund – Maybe you want to take that trip to London after all of these years!
- House Fund – Maybe you want to buy a house and need a 20% down payment
*If you aren’t already doing so, ALWAYS take advantage of any retirement plan where the employer matches your contributions, even if it’s only $0.50 to every $1 you contribute — this is an instant return of 50%.
**The Canadian government matches some of your RESP contributions, which is why it’s better to save your education money here than in a regular account or RRSP.
BUT I DON’T MAKE A LOT OF MONEY!
It doesn’t matter how much you made or didn’t make, what I am asking is that you take your former debt repayment amounts and save it. You lived on the budget before without that money, so why not go forward saving it instead?
BUT I WANT TO ENJOY MY MONEY AFTER PAYING MY DEBT OFF FOR SO LONG!!!
So enjoy it!
Just realize that the more of your money that you enjoy now, the less you will have for your future for your other big goals like buying a house, having a family (maybe?), going back to school, taking a trip, etc.
The choice is entirely up to you.
No one wants to police you on how you should spend or save your money because you are the only one who can decide what your priorities are.
OKAY OKAY…WHAT KIND OF GOAL SHOULD I SET?
A realistic one.
Please don’t tell me you make $20,000 a year gross, but want to save $50,000 net. Unless you’re dealing drugs on the side *cough* or have some other way of getting more than $50,000 gross in additional income after paying for your living expenses, this is not realistic by a long shot.
That said, start small and then build up a momentum
You have two ways to go about this:
1. SET A DOLLAR AMOUNT AS A GOAL
Tell yourself you’ll save $5000 this year in your retirement fund.
$5000 / 12 months = $416.67 a month
2. SET THE GOAL BASED ON WHAT YOU PAID IN DEBT BEFORE
If your debt repayment was $200 a month, then obviously you will need to scale this down and save $5000 in 2 years instead.
$5000 / 24 months = $208.33 a month
If you can handle that, then set your goal as $2500 a year.