"An unhurried sense of time is in itself a form of wealth." - Bonnie Friedman

A Plan For When You’re Debt Free – A Life Without Debt

By , May 4th, 2010 | 8 Comments »

Congratulations! You paid off that last debt and you’re officially debt free. After the celebration party ends, you’re likely to be confronted with one thought: Now what? You’ve just spent months or years focused on the goal of getting out of debt. Now that you’re there, what do you do next? It can be difficult to make the transition from “getting out of debt” to “living without debt.” There are a lot more options available for you and your money now. You have to make decisions about investing, saving, and having fun. It can be more overwhelming than figuring out how to get out of debt. So how do you get started? Here’s a plan.

Spend a night or a weekend revising your budget: All of that money that you were paying toward debt is now available for other things, so you’re going to need to sit down and figure out exactly how much you have to work with once your utilities, insurance, food, and other necessities are paid for. once necessities are paid, you’ll have a chunk of money available to save, invest, or spend.

Set your priorities: What do you need that extra money for the most? Do you need to beef up your emergency fund? Do you need to set some aside for a new car? Do you need to save more for retirement or a child’s college education? Decide on the things that are most important to you and then list them in order of importance and urgency. For example, retirement is very important but if your car is on its last leg a new(er) car is urgent. You may want to temporarily put the car at the top of your list.

Allocate money to each priority: From step one you know how much total money you have to use to reach your goals and from step two you know what your goals are. Now, allocate your extra money to each goal. Generally the most important goal gets the biggest share and so on down the list until you are out of money. Depending on how urgent some of the top goals are, you may not have enough to give money to every goal right now because the most urgent needs should get more money. That may mean there is little to nothing to cover the bottom of the list. That’s okay. Once those top goals are met, the ones at the bottom of your list will move up in importance.

Decide which goals will be ongoing and put them down as line items
in your budget
: Saving for retirement will likely be an ongoing goal, with a fixed amount of money going toward it each month. Anything that must be saved for on a continual basis (new car or appliance fund, college, retirement, etc.) should become a line item in your budget, just like utilities and food. That way, you always take those goals into account each month. Goals like vacations and home improvements, which are usually temporary, will remain on your priority list until you do them, and then they will fall off. These goals get whatever money is left over after you pay for your necessities, including your ongoing savings goals.

Educate yourself: Now that you have money to use, you need to learn about investing, estate planning, and money management. Read a lot of books and magazines, attend classes, or get help from expert friends. You need your money to work hard for you and a savings account won’t cut it. To avoid being taken advantage of or making big mistakes you need to know how to handle your money.

Exercise restraint: It’s very easy to go nuts when you become debt free. Suddenly there is all this money in your budget and it’s tempting to go on a binge. Be careful. Too much of that can put you right back into debt. Sure, go ahead and have a little fun, but be cautious. Go through steps 1-4 as soon as you can so you don’t just have all that money sitting idle and tempting you to spend.

Living a debt free life can be a big transition if you’re used to years of debt bondage. If you’ve spent years focused on paying off debt, it can be jarring to suddenly have to think about other priorities. Take your time, put it all down on paper, and educate yourself about money management. You’ll be able to make your money work hard for you while also enjoying your new freedom.

Get Your FREE Book Now

Enter your name and email address to get your FREE copy of "Guide to Shopping at Costco."

We won't send you spam. Unsubscribe at any time. Powered by ConvertKit
What did you think about this article?
1 Star2 Stars3 Stars4 Stars5 Stars (7 votes, average: 4.71 out of 5)


  • Stephan says:

    Interesting point as i dont think a lot of discussion is taking place on how people adjust to being debt free. All the tips, books, and advice focus on how to get out of debt. But this looks at what to do when you are debt free. I hope that for most people the thought of going back into debt is enough to keep them on the right path. They will have hopefully learned by their past mistakes that you should always make more than you spend!
    Preferred Financial Services

  • EEinNJ says:

    The same principles of saving, investing, having goals, and spending carefully still apply whether you have debt or not. It’s just when you are debt free you have more to work with!
    The biggest reason I am debt-free is because I did all the things this column suggests FIRST. So I never got into debt trouble to begin with.

  • GregOlney says:

    Most people who get out of debt seem to figure out a new way to get in debt… It’s a vicious cycle.

  • Lisa Smith says:

    i absolutely agree with stephan. it is very good feeling to come out of debt. but as greg said people try new ways to come again into debt.

  • Larabelle says:

    Thanks ….This article is timely as in the next three months I will be debt free. I am so looking forward to being debt free. I know that my next goal will be significantly increasing my emergency fund.

  • cybergal5184 says:

    You definitely need a plan for what to do when you get out of debt otherwise you can wind up just spending all of your money. On the other hand, unless you’ve lived a really austere lifestyle, you may be able to just stay on autopilot the whole time.

  • Augustine says:

    Excellent advise by Sadie again. Readers may want to read the book by Mary Hunt titled “Debt Free Living.” She discuses how to do what Sadie talks about. One can open several accounts with one of the internet banks that allows one to have sub-accounts within an account e.g. ING. I am of the old school so follow Mary Hunt’s contingency planning with a note book but with my money in a local bank.

  • Roy T says:

    It is absolutely true that getting out of debt can be a great feeling. This is especially so for those who appreciate they are no longer at the mercy of their creditors, especially the banks. No more risk of a rise in interest rates scuppering their budget.


Leave a Reply


Sign up for the "Saving Advisor" newsletter (Weekly)
Google Plus

Subscribe by email:

Related Articles

Previous Years Articles

Today, last year...

Copyright © 2018 SavingAdvice.com. All Rights Reserved.