June 5th 2015 will be a big day for the rest of my life. It’s the day that I paid my last student loan and officially became debt free. Cue the dance party!
Just over a month later I am proud to report I have maintained my debt free status. I’ve stayed out of credit card debt and while I definitely got a little spendy with my debt free celebration, I’ve realized that a frugal lifestyle works well for me and it’s something I plan on continuing.
For the last 10 months, my life has been built around becoming debt free. I changed everything about myself to pay off my debt. The way I ate, the way I shopped, my entertainment options, my transportation habits, my debt payments- I’m using literally correctly when I say that literally everything changed.
Now I’ve reached my goal and I find myself asking ‘what’s next?’
I sat down and asked myself some serious questions about what I want from my life after debt and what I want for my financial future.
Debt payoff was actually pretty easy compared to this next step- investing, saving, maintaining a frugal lifestyle over time. Post debt, I took a hard look at my income, thought about my future and came up with a short term, medium term and long term goal.
Short Term Goal- Now- End of 2015
For the rest of this year I want to focus on maxing out my IRA. I have a Roth that I almost completely ignored while I was paying off my debt. In the remaining five months of the year I want to save and invest $5,500 into that account and jumpstart my retirement savings. Compound interest favors the young and I’m already getting a late start!
I also want to increase my emergency fund a little bit this year. It’s not a major goal, as my lifestyle is pretty minimal and I don’t have any major expenses or own anything super expensive that would need a multi-thousand dollar fix. I had a $2,000 emergency fund the entire time I was paying off my debt. I’d like to increase that to $3,000 by December.
Medium Term Goal-2016-2018
In 2018 I will turn the big 3-0 and I have set some goals for that birthday. I want to invest $30,000 in my retirement accounts. Since I want to take advantage of compound interest for my longer term investments like retirement, that will be my focus in the medium length future. Hopefully my income will increase over the next two and a half years, otherwise this is a pretty lofty goal for my meager salary!
Starting at the beginning of 2016 I also want to have a more deeply funded emergency account. I feel like having $5,000 in an emergency fund will be more than enough to cover any expense that comes my way and, if I maintain my current lifestyle, is about 6 months of living expenses. So my aim is to increase that to $5,000 around the time I turn 29.
Long Term Goal- 2018 and Beyond
While I think it’s good to think long term and ask yourself what you want out of your life, there are only so many things you can plan for. In my case, I know I want to move out of my current city and spend a few months abroad around the time I’m hitting 30 or 31. With those kind of thoughts, it’s hard to say exactly how much money I’ll need.
I also know that I want to buy a home around age 35 though, so it’s important to me that I have a stream of income by 31. I’d like to save for four years and be able to put 25%-30% down on a house. I know that I that I’m interested in early retirement, so being able to put money into my retirement accounts no matter my job or travel situation is also important to me.
For me having an idea of what I want in 5-8 years is good enough for right now. So much of my life is up for debate that I can’t (and don’t want) a concrete plan, but something more like a guideline.
Overall, getting out of debt has taken a huge weight off my shoulders and opened me up to a whole new world of possibility. I can start taking action on dreams like early retirement or home ownership. I am more comfortable taking time away from work or taking a lower paying job with no debt payments to make. I feel good about taking short term action and having long term guidelines with my finances.
There isn’t an exact life plan to follow but a little thought never hurt anyone.
What are some of your financial goals for yourself? What does life after debt look like for you?