Becoming debt free is a long sought out goal for many. So once the moment finally arrives in your life and the excitement dwindles down, you are left with the thought… ‘Now what’?
Those that are debt free have their entire lives ahead of them to do exactly what they want. But the best action plan is to remain financially responsible. You can, however, take the protection gloves off and not be as frugal as you once were. Just make sure you don’t fall into the pitfall of debt again.
Adjust to Your New Lifestyle
The first thing you want to do is get comfortably adjusted to your new lifestyle. You may have been a penny pincher, and its fine to remain that way. Just define what you want out of life. You’ll need to make adjustments, because the path to having no debt could break many people emotionally.
However, it should feel good to pay your bills a month ahead of time. You now have the peace of mind you’ve fought for during this debt free journey. None of your wants were met during this journey, so it may be time to give yourself a small reward here and there.
So now you’re getting adjusted to not having a mortgage or auto payment. This is not the time to feel you deserve a new one. Make wise decisions to keep yourself out of debt. If you want the new item, ensure you can handle the bill. The next few points will discuss your savings options. These options will fit into your new lifestyle to help you avoid going into debt again.
Always Pay Yourself First
One of the general rules of becoming debt free was to pay as much as you can to your lenders. Once you have paid one off, you’re now moving those funds to pay another debt off. Now that these debts are eliminated, work on paying yourself first.
Take note that this is not mad money though. This is investing in your financial future. Some picture living with a much lower salary. So if they make $40,000 a year they imagine themselves as making 10% or 20% less. So they are looking at making $36,000 or less a year. Budgeting your lifestyle around this number can help you avoid debt. This means you are immediately putting that money away.
You can either set up with your employer your direct deposit to do this automatically. 10% of each paycheck can go directly into your savings so you don’t have to see it at all. Set your bank account to automatically transfer money from your checking to your savings account.
Keep Account of Everything
An important habit to become accustomed to is to keep account of everything. So while budgeting, make sure to track your true expenses.
Also, do your own research and review all documentation. Never just trust your financial advisor or tax preparer. To truly have control over your finances, you must know the ins and outs of everything. You can catch errors before they get out of hand.
Ask for What You Want
Those living debt free keep themselves debt free by asking for what they want. Don’t pay a late fee if you’ve paid your bill on time the entire year. Ask them for a late payment forgiveness.
If you’ve decided for whatever reason to continue to use your credit card, ask them to reduce your interest rate. Tell the creditor this may entice you to use your credit card. Don’t forget to ask financial experts for advice either. If you see someone doing well financially, ask them how they got there.
Set Savings Goals
You don’t want to eliminate everything fun from your life. It’s ok to purchase a new car, buy new clothes, vacation, or get a new gym membership. You can even set specific savings goals for your retirement years. You may want a golf club membership or take a specific vacation.
However, you can do so smartly and without getting yourself in debt if you set yourself a few savings goals. Banks allow you to make each goal more realistic. You don’t have to have just one savings account. You can have multiple accounts and link them all to the same log in account. Nickname your accounts for each: Cadillac, Louis Vuitton, Vacation to Paris, Toronto Athletic Club. Now, should you strive for such pricey goals? Probably not, but you get the idea.
Don’t Be Afraid of Saying No
The word ‘no” seems so ugly. However, saying ‘no’ is the best way to avoid the temptations that can get you back into debt. Don’t be afraid to say no to yourself, your family, and your friends.
You may want a new pair of shoes, but decide if its’ really worth it. Your children may want to go to the most expensive summer camp in Canada; however, there are other feasible camps right in town. Your friends may want you to go to dinner with them every Friday night, but twice a month will suffice. Or, ask your friends to come over for a potluck dinner instead.
Stick to Cash
Using credit cards is the fastest method to overspending. You are not seeing the money disappear with each swipe. It doesn’t hit home until your monthly statement arrives. Stick to using cash so you can see and be reminded of your funds depleting. You’ll quickly change how often you make purchases as well as what you are buying.
Learn What to Watch Out for With Credit Cards
Your weakness may be credit cards. This may make you want to destroy them all and close your accounts. However, be mindful that closing your credit cards can hurt your credit history. Instead, freeze them in bowls of water or just cut them up. You can always request a new card later and that will buy you time before making a purchase.
Learn How to Use Credit Wisely
Credit is not always a bad thing. Some just misunderstand how to use it to their advantage. Credit cards can build your credit. It’s just important to charge no more than what you would normally spend in a given month. Then pay the card off at the end of each month to avoid the high interest. To help keep you out of trouble, ask your credit card company to lower your credit balance.
Learn the Difference between Qualities versus Quantity
Another important thing to do while keeping up with your debt free lifestyle is to shop wisely. While you were on the road to financial freedom, you may have learned a lot about using coupons, renting versus buying, purchasing secondhand and sale items, and comparison-shopping. Keep this attitude up.
Another important tip is to learn the difference between qualities versus quantity. You should prefer to buy one expensive stove that will last you 15 years versus one inexpensive stove that will last roughly 5 years. That’s just one example of a major purchase you should be willing to make.
Start Exploring Investment Opportunities
Now that you’ve freed up money from debt, you can explore investment opportunities. Start researching about the various money market accounts. See how else you can invest outside of your company’s retirement savings.
You may want to dabble in peer-to-peer lending. Real estate is always a great investment option for passive income. You can also invest in your own business and perform freelance work on the side. Investments are all about building your own wealth.
Plan Your Future
Don’t forget that part of your retirement future involves what you can do for yourself now and then. So plan your future.
Consider your career for instance. Do you want to be in the same position until you retire? Chances are that you don’t. So you may need to invest in your educational opportunities such as a class or two each year or to gain additional certifications.
Focus on Delaying Your Old Age Security Pension
While planning your financial future, think about delaying your Old Age Security (OAS) Pension. You see, you can defer this pension until 5 years after you are eligible to receive it. Your pension will increase by 0.6% each month you delay receiving it! That means you could be eligible for up to 36% by the time you are 70. Do keep in mind though that you won’t be eligible for the Guaranteed Income Supplement until you do accept the OAS.
Keep Positive Influencers around You
Not everyone is going to cheer you on for being debt free. There will be a lot of negativity out there, so try to keep positive influencers around you. They will continue to be debt free and offer sound advice to you when you need it most. They won’t encourage you to spend your money frivolously, and better yet, they won’t try to have you spend your money on them.
So as you can see, the struggle is not quite over after you’ve become debt free. However, the benefits of continuing your own lifestyle and program to get you there are so much more rewarding.