Working your way out of debt is no small feat, and if you have managed to do so, congratulation on a job well done. This financial accomplishment should certainly alleviate a lot of financial stress you may have had while in debt – so what’s next? You natural first thought might be, “So I’m out of debt, now what do I do?”
The good news is that you have a wide array of options available to you now that you have eliminated you debt. The first thing you need to do at this point is set up a financial plan for your future. Also, avoid any credit or loans for the purchase of material goods or non-investments. Below is a look at three areas you should consider carefully when setting your future financial goals.
Set Up an Emergency Fund
Financial experts all agree that everyone should have an emergency fund set up, to help them in case of an emergency situation, such as the loss of a job, illness or injury, or major repairs needed for your home or car. The last thing you want to do is go back into debt the minute you face an emergency. Experts suggest that you set up a separate fund that totals at least half of your annual salary. This will give you six full months to deal with any ongoing situation in your life before you even need to consider taking out more debt. This emergency fund should be set up in a separate account that you do not touch and one that gains a least a little bit of interest during the year. Setting up this type of fund should be your first step after becoming debt free.
Plan for Your Retirement
After you have established your emergency fund, the next thing you want to think about is your retirement fund. You are certainly not going to want to work forever, and the earlier you start your retirement plan the more financially stable you will be during your golden years. The type of retirement plan you choose to set up depends a lot on your age and how many years you have left until you plan to retire. The best thing you can do is sit down with a financial counsellor, who understands retirement planning, and discuss your options. A counsellor will be able to explain several options for preparing for your retirement, and he/she can help you determine which options would be best for you.
Once you have your retirement plan and emergency fund set in place and feel comfortable with your decisions, you can now focus on various investment options. The first step is to sit down and determine where you see yourself in five, ten, fifteen years. Make a list of what this visions looks like to you. Include important aspects of your life in this vision, such as your job, where you want to live, and your financial stability. For example, do you hope to have a new job, want to start your own business, thinking about moving to a new area or are you content where you are and just want to build a nice investment portfolio.
You should be proud of your accomplishment in becoming debt free. Now is the time to plan for your future so that you never have to worry about negative finances again. Careful planning in each of the three areas listed above will not only help you prepare for any set of unexpected circumstances, but it can help you turn your money into a great investment. Just like you did when you were planning to get yourself out of debt, sit down and make a concise action plan for your financial future that includes the three areas listed above.
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