Ever watch a dog that has the slightest twinge of hunger? You can literally see their mind racing on that one single topic — “Food, food, food, gotta have food.”
When we’re extremely motivated to get something, our brain acts just like a dog on a hunt for food. It’s 100% focused and totally oblivious to anything else!
“Get out of debt, get out of debt, gotta make another $20, get out of debt.”
Haha! This is great and all when we’re just racing to get out of debt, but what about when you hit that goal? What the heck should you do once you get out of debt? There are so many people out there that just don’t have a clue. They might save up a few more bucks, but they just end up floundering. Heck, quite a few of them actually end up going back into debt! Isn’t that just crazy?!
It’s time to figure out what goals to have after getting out of debt!
5 Goals to Have After Getting Out of Debt
I’ve been in debt…twice (Thanks again ex-wife…but I’m not bitter ;)). Thankfully, I’ve battled my way out both times. And, with these experiences I can more clearly speak to the important steps you should take once you get out of debt yourself.
1) Save Up a Big, Hairy Emergency Fund
Emergency funds aren’t flashy, they’re not exciting, and you definitely won’t impress your friends with your savings account story… But, this is exactly what you should do.
Save up 6 months’ worth of expenses and plop it into a plain old savings account that earns a whopping 1% interest. The idea here isn’t to earn money with your money, it’s to avoid giving it to everyone else when an emergency happens (you know, like fees when you bounce checks, interest payments on credit cards, and horrendous fees on cash advances).
2) Start Saving Up a Down-Payment For a House
Renting is smart…if you do it right.
If you’re living by yourself and your apartment complex has tennis courts and a pool….you’re not doing it right. And this type of living will continually cost you more and more money in rent (thanks to inflation).
When you buy a home, you’re locking in your monthly costs. AND once you pay off the mortgage, you can essentially live in your space for nothing for years and years! It sure beats renting, and it’s why I recommend to almost everyone to buy a house instead of renting for the long term.
So, after you save up your emergency fund, start saving for a down-payment on your very first home!
Want to know how much house you can afford?
Here’s how you should calculate it:
- Figure out your take-home pay each month
- Take that amount and divide it by 4 (this is the monthly payment you can afford)
- Open up a mortgage calculator and enter in the loan amount you think you can afford on a 15-year term, and then check out the payment amount. If it’s higher than 1/4 of your take-home pay, then it’s just too much. Tweak the mortgage total until you get to your desired monthly payment.
Also, plan to make at least a 10% down-payment (20% is best, but isn’t realistic for everyone). If the houses you’re looking at are $200,000, then save up at least $20,000 for that down-payment. And again, don’t get too fancy with your down-payment money. Just keep it save in a savings or money market account.
3) Invest for Your Retirement
Alright. You’re out of consumer debt, you’ve built up your emergency fund, and you’re saving up a down-payment for your first house. Now it’s time to start saving some serious money for your future! No matter what your age, I recommend that people invest 15% of their income toward their future retirement.
If you earn $50,000 a year and invest 15% of your income from the age of…
- 25, you’ll have $3,100,000 by the time you’re 70. BOOM!!
- 35, you’ll have $1,400,000 by the time you’re 70. It’s not $3.1M, but you’ll still be living large!
- 45, you’ll have $600,000 by the time you’re 70. Add in Social Security and you’ll be just fine.
They key is to just get started and have a savings goal!
Not too fond of the stock market? Then start investing in your own business, and then after that gets moving, use the profits to invest in real estate!
Related: How to Invest Outside of Your 401k
4) Start Saving for Your Kids’ College
What are the best goals to have after getting out of debt? The first three were the biggies, but there’s still a couple more that you should target!
College tuition costs are still on the extreme rise each year (still outpacing general inflation), which means that it’s becoming harder and harder for our kids to pay for it with cash.
Student loans are all too normal these days, and with the average student loan at $35,000 they’re having a seriously crippling effect on our children!
- Kids are often forced to move back in with their parents to make ends meet
- They quickly take the first job that’s offered to them so they can pay the bills
- The student loans drag them down for 10+ years as young adults desperately try to get out of their hole
All in all, college debt is postponing adulthood for many and it’s making retirement savings nearly impossible.
Instead of signing your kid up for a future of failure with student loans, why not plan to help them out by funding some of their schooling yourself? After all, you’re out of debt now, you’re saving 15% toward your retirement, and you’ve probably got some excess cash yet that used to go toward debt payments.
Take 10 minutes out of your life, do some quick research, and open a college savings plan for your kids.
5) Pay Off Your House
Already purchased your house, but just got out of consumer debt? Then after saving up that emergency fund and setting aside 15% toward your retirement fund each month, it’s time to throw the rest of the money at the house and get that bugger paid off!
But wait, most financial experts tell you to keep your home mortgage. They say…
- Your investments will earn more than your mortgage interest will cost you, and
- The mortgage is a great tax shelter
First of all, the stock market doesn’t always go up (remember 2008…?), and if we have another down-turn soon, you’ll have a hefty mortgage and a paltry retirement account. Sounds like pretty terrible advice to me.
Second, the only reason you get a break on taxes is because you’re paying a whack-load in interest on your mortgage….which does absolutely nothing for you when it comes to owning your house outright. Why someone would want to pay $10,000 to the bank to avoid paying $2,500 to the government, I have no idea. I’d much rather pay the $2,500.
Seriously, Just Pay It Off
I tackled my mortgage hard in 2014 and got it paid off in less than a year (it’s amazing what absolute focus can do!). It’s now been almost three years since I’ve been completely debt free and I’ve honestly never looked back.
Since then, we’ve bought an $80,000 rental house with cash, and now we’ve already saved up our next $80,000 to do it again! These properties will net us an extra $20,000 a year. So, would I rather just be sitting back and paying the minimums on my personal mortgage? Ummmm, I don’t think so!!
Seriously people, just pay off your house. You won’t regret it.
Bonus: Give More
One of the best goals to have after getting out of debt is to give more.
I always recommend giving 10% of your income toward something you’re passionate about: hungry kids, elderly women, displaced families due to natural disasters. It’s amazing the effect this can have on others, but I bet you’ll also be surprised at the impact it will have on you. You’ll smile more, you’ll spend less (since you’re now a little less self-centered), and you know what? You might even live longer!
It’s Your Turn: Drive Toward Your Next Goal
Alright, you’ve got no excuses now. Once you reach your debt freedom date, you should already have another goal set there in front of you.
- save up your emergency fund,
- put money toward your first house purchase,
- put 15% toward your retirement,
- invest for your kids’ education,
- pay off your house, and/or
- start giving more!!
What will be your top goals to have after getting out of debt?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.