Getting out of debt can feel like walking into the light and not knowing what to do with it. It’s a strange feeling, it can be overwhelming, and already you have a list of “as soon as I’m out of debt, I’m gonna….” activities in mind. There are a few ways to help you move into the next stage, which is called, “Wealth.”
First, throw away any credit card offers that will come piling in.
In a few months, the companies will find out that you’re not one of their victims any more. The offers may slow down. Build a gorgeous bonfire or backyard grill fire with the offers. You’re done with that nonsense.
Second, start building your savings. account. Advisers tell me over and over to take the same money I was sending to credit cards and put it in the bank. However, I would recommend half. The other half makes up to me what I could not buy while I was in debt, including basics like clothes. Put half of what you used to pay to credit cards into a savings account. Do not be content with the balance until you reach 6 month’s worth of salary. In this economic client, the experts are recommending six months over three.
With the other half of the money, give yourself something. It’s tempting at this point to go on that vacation. Go. But when you get back, you have to be diligent again. Take care of repairs to your home and to your car. Buy clothes so you look good at work. buy only durable things with the money that used to get stuck going to cards. Take care of all repairs and upgrade needs before going out to eat.
By the way, you get a lot more value out of buying a new stove than taking yourself out to eat often. Not only do you manage your health (and weight) by cooking at home, but you also pay less gas or electricity to run your new stove. If you hate the idea of eating at home, invite people over. If you hate cleaning up, treat yourself to a dishwasher.
There is a tipping point after the tipping point of paying off your cards. Money becomes more precious to you because you see your bank balances growing. You don’t feel helpless any more. It’s like you’ve suddenly gone from the gerbil wheel to the top of the world. At this tipping point, allow yourself to be a bit more conservative as you enjoy seeing your free cash flow increase and make decisions and taking care of yourself much easier.
Finally, learn how to invest. You were plunging a lot of money into debt. Now, the cash has to be used well. You earned the wealth you’re building. Buy an investment advice book (my favorite is Peter Lynch’s stuff) and learn how to play with your budget in this new way. You’ll love every minute of it.