What will you do when your debt is paid off?

I've been in debt just once: during and after a two-year-long divorce, a time during which I was also a midlife university student. Good times!

Nineteen months after the divorce decree, I zeroed out my legal debt. I also took a deep breath for the first time in years. Unfortunately, I had no idea what to do with the extra money each month.

What I should have done: Visit a fee-only financial planner.

What I did instead: Put all the extra money in the bank — in a general savings account.

(This object lesson is brought to you by the letters G-E-T-A-C-L-U-E.)

What will you do once your debt is retired?

Even if your final payment is years away, now is the time to blue-sky what you will do when your obligations are met. Otherwise, you might:

  • Return to the same habits that helped lead to indebtedness, or
  • Simply tread financial water, the way I did.

Having a plan = having a goal. Your dreams may vary: funding retirement (essential!), learning to invest, starting a business, buying a home.

The future sneaks up on you when you are looking at months or years of sameness. Work, pay bills, get by on what's left. Pinch, do without, worry. Lather, rinse, regret.

That's a recipe not just for future financial backsliding, but also for opportunity cost. (More on that in a minute.)

Nothing of value?

Put another way: Suppose you dieted and exercised for a year after a heart attack. Smart move. Yet you wouldn't be human if you didn't resent the process now and then. So sick of workouts and salads. Oh, to sleep until noon and then have a brunch made entirely of cupcakes.

Upon getting a clean bill of health, it'd be tempting to burn your gym card and enroll in the Ice Cream of the Month Club — but then your health problems would just return. Far more sensible to create a plan of regular exercise and smart eating, with occasional treats.

The same is true of money. If your previous issues were recreational shopping and daily meals out, revisiting them could mean additional debt. New shoes and sushi sprees (say that five times fast!) are lots of fun. They also represent tremendous opportunity cost — expenditures that bring nothing of lasting value.

Just as a health-conscious person can indulge in an occasional cupcake, you are entitled to spend on yourself once you're back in the black. The issue is how you spend, i.e., making choices that lead to happiness and security.

One simple question

How do you know now what you'll want later? Financial planner and New York Times columnist Carl Richards suggests jump-starting the process with one simple question: Why is money important to you?

Does it mean freedom? Flexibility? Security for those you love? Giving back? The chance to have your own cupcake franchise?

“Before you can plan, you have to know why you're planning,” says Richards, author of “The One-Page Financial Plan: A Simple Way to Be Smart About Your Money.”

That simple question leads to others:

Employment: Will I stay in this job after I've vanquished my debt? If not, what kind of work would I seek?

Family: Do we want kids? What would it take to be financially secure enough to do that?

Real estate: Do I want to buy, either for myself or for additional income? How can I learn more about this?

Entrepreneurship: What can I do now — take classes, apprentice, apply for grants — to be ready once I'm financially free?

These questions all have the same underpinning: What would I do if money were no object? You can't answer that question in any meaningful way without thinking it through.

So start thinking! What will you do when your debt is paid off? Do you have specific plans or pie-in-the-sky dreams? How will you implement or refine those ideas?

More about...Budgeting, Debt

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Ali @ Anything You Want
Ali @ Anything You Want
5 years ago

Although I don’t have debt, I have been saving for the past few years to purchase a new car. Now that I have saved enough to make that purchase, I’m feeling a little lost in terms of savings goals. This is definitely causing me to spend a little more than I usually would. I’ll have to think through your great list of questions to figure out where to go next!

Cookster
Cookster
5 years ago

It’s so good to see you writing for this site, Donna.
I upped my giving. When all debts were paid off after the divorce (car, lawyers, etc.), I bought a small cottage that I have wanted forever. Now, I just have the mortgage and cut-to-the bones living expenses. I have plenty (do we ever have enough?) in savings, so I support those who are in need through my church. I feel blessed.

Donna Freedman
Donna Freedman
5 years ago
Reply to  Cookster

During very tight financial times (the “Surviving and Thriving on $12,000 a Month” period) I still donated $20 to my church, which provided rent assistance, home care for AIDS patients and other social services.

It wasn’t that I couldn’t have used that $20. I surely could have. But giving it reminded me how fortunate I actually was, i.e., I could scrape $20 a month from my budget and still keep the lights on.

I’ll be thinking of you in the cottage of your dreams, happy and still thinking of the needs of others even on a bare-bones budget.

Barb
Barb
5 years ago
Reply to  Donna Freedman

I think you mean: Surviving and Thriving on $12,000 a Month – YEAR? 12K a month would be much more than surviving in my book 😉 LOL, Great to see you writing here 😉

Donna Freedman
Donna Freedman
5 years ago
Reply to  Barb

Argh! You’re right! It was $12,000 a year.
Very embarrassed.

TweakNutz
TweakNutz
5 years ago

I save for a time where I might not be as fortunat. 401k, Emergency Fund, Roth IRA… You never know when you might have to change jobs or have an emergency to deal with – and the older you get, the more expensive the emergencies.

Sylvia @ Professional Girl
Sylvia @ Professional Girl
5 years ago

I have debt and once it is gone, I would like to start investing and saving for a home.

Cindy
Cindy
5 years ago

I plan to be debt free early next year, and this thought has been running through my head for a while now. I feel like I have a lot of different priorities fighting for my dollars, most of which are medium to long term (saving for a house, retirement, etc). I’m leaning towards doing some sort of a split between short term, medium term, and long term goals, weighted more towards medium and long term goals.

Mike in NH
Mike in NH
5 years ago

Aside from my mortgage I’m only in debt to my future self. After enough of that obligation has been paid it’s time to retire and hopefully enjoy the results of all the planning and effort.

Niomi@Financially Confident
5 years ago

When I’m debt-free, I’m going to roll around in all of my money that I’ll get to keep–instead of sending it off to the credit card companies!

I haven’t really thought it out farther than that…

Ash
Ash
5 years ago

I’m out of debt, am funding retirement, have a healthy emergency fund and have just finished cash flowing my son’s university education. He has also had medical issues that have cost a lot over he years.
For he first time in my life I have the option of actually BUYING myself something.

Donna Freedman
Donna Freedman
5 years ago
Reply to  Ash

Go Ash! If this is the same Ash (from Ireland?) who leaves comments on my personal site, then good for you for getting yourself to where you are. I know it hasn’t been at all easy.

Ash
Ash
5 years ago
Reply to  Donna Freedman

Yes, the very same from ‘The Emerald Isle’. Brilliant article as usual!!

Celia
Celia
5 years ago

This article didn’t really say why visiting a financial planner is important. I know savings rates are poor at the moment, but giving specific examples of how you used your money after debt would be illustrative.

Rosa
Rosa
5 years ago
Reply to  Celia

I’m pretty sure she just meant she would have invested in something with a better yield than that savings account. What it would be depends a lot on when you’re making the decision – specific investment advice from 10 or 20 years ago doesn’t mean much these days because returns on different things have changed so much (and of course the last few years don’t necessarily predict the future)

Linda Vergon
5 years ago

(This comment came from Patricia, a reader of our daily newsletter.)

I am down to my last credit card. Once this is paid off I have a standing appointment with my bank advisor. We are going to start an emergency fund, put more money in my IRA and into my Valic (Arkansas Diamond) account for my retirement. Between my state retirement, my IRA, My Valic account, and Social Security (if it still exsists) I should be fine. My house will be paid off before I retire so I should be okay.

Matt
Matt
5 years ago

When you have a goal set you need to think about the next goal you want to acheive after you have acheived that goal. This is an obvisous example. I have my house paid off, all cars paid off, just bought a car cash, and paid for college for two sons. My next goal is saving outside of retirement funds.

spiralingsnails
spiralingsnails
5 years ago

Great timing Donna: last week my husband and I celebrated our wedding anniversary by sending the final lump-sum payment to wipe out our student loans ($85K+ original plus 3 to 8.4% interest rates = maybe around $95-$100K total). I still feel like pinching myself – I can’t believe it’s real! We are finally, totally, completely, 100% DEBT-FREE! Now we can take all that beautiful extra money every month and make a bonfire of it! Buy new computers and smart phones! Go out to eat every night! Sign up for auto payments on a honking huge SUV and put a Mr… Read more »

Donna Freedman
Donna Freedman
5 years ago

Congratulations! I’m so glad you reached that goal.

Kayla @ Femme Frugality
Kayla @ Femme Frugality
5 years ago

Great tips! I am still working on getting out of debt that I started accruing during and after my divorce 4 years ago. I was also in the middle of getting my college degree, haha, yes good times! 😉 I do have some plans for after I get out of debt and I’ll think even more about it as it approaches.

lmoot
lmoot
5 years ago

When my mortgage is paid off, and I have enough passive income from rental properties to quit working full-time, I want to become a perpetual student and learn as much about this place we call home, and it’s inhabitants, for the short time I’m here.

I’d love to work/ volunteer seasonally and take long and frequent sabbaticals. And use my power of knowledge for good only, of course. Hated school as a kid but as an adult discovered that I love learning and unfortunately don’t have the time I had when I was younger and took it for granted.

Steve
Steve
5 years ago

I have to say that my wife and I are debt free except our house. We are currently working to build up our 6 month emergency fund so that we can put some margin in our lives in case things go wrong in the future (life always throws you curveballs!). While it is taking us longer then expected to save this money, about 2 years, we do have our 2 girls in full time childcare and still do vacation and live pretty well. After finishing up our emergency fund by the end of 2015, we are looking forward to socking… Read more »

Katie
Katie
5 years ago

I paid off my credit card debt about two months ago. I’ll admit, the past couple months I’ve mostly spent it on fine dining. Food is a priority for me and one of the things I genuinely expect to spend a lot of money on once I retire. Worth it! I’ve buckled down now and that $310/month is going toward investments!

Lanthiriel
Lanthiriel
5 years ago

Once we’re done with student loans, the plan is to max out retirement savings, add another $14k to our efund, and take a trip to Europe. We’re hoping all of those things happen in 2016!

Jeanbe
Jeanbe
5 years ago

Is Edward Jones a good choice for investing extra money? My sister is pushing me to their guy but it seems from what I’m reading they have some heavy fees.

lanthiriel
lanthiriel
5 years ago
Reply to  Jeanbe

I would not recommend going with Edward Jones or any other “active management” product. Invest in Vanguard index funds and you’ll be fine. Even if for some reason your chosen fund underperforms the market (unlikely), you’ll probably be saving the difference in fees.

Rosa
Rosa
5 years ago
Reply to  Jeanbe

the reason Donna said “fee only” in her post is because you want someone who charges you a fee and isn’t making commission – either a flat fee for advice or a small percentage of worth or growth, so their interest is in you coming back again or you making money.

My guess would be most of the investment firms are paying commission, which influences what they advise you to do in ways that aren’t just looking at your best interest. Check out how Edward Jones pays their people before you go there.

Nick @ Millionaires Giving Money
Nick @ Millionaires Giving Money
5 years ago

After I got out of debt having the spare money was a nice feeling. I did treat myself and others occasionally however I quickly built up an emergency fund and started topping up for my retirement to avoid the mistakes I made in the past. I think its good to occasionally push the boat out so long as you’ve got sound financial habits in place.

Jason B
Jason B
5 years ago

Once my debt is paid off I want to invest in real estate. I would like to purchase a few quads and rent them out to you professionals that need a place to stay. I also want to travel for at least 6 months in Europe.

Natalie
Natalie
5 years ago

WOW I can only dream of being debt free!
I just finished uni ( in uk ) and I am looking for a job and I am up to my ears in student debt. It’s crazy.
My little brother sees how stressed I am and has second thoughts of going to uni.
I do wish that once I’m debt free,I will start a business.
Just do what I love and work for myself.
I’m glad I read this,very interesting.

Nick @ Millionaires Giving Money
Nick @ Millionaires Giving Money
5 years ago

Once I’ve paid off all my personal debt and mortgage I’ll probably start investing the excess money that comes in every month. My ultimate plan is to move out of my 3 bedroom home once I’ve paid off my debt and downsize to an apartment studio with smart functional spacing. The rent from my old home and any other income would then be ploughed into my tax efficient investment accounts. Great post, thanks for sharing.

Linda
Linda
4 years ago

Donna,

Why do you admire Carl Richards? He welched on $200,000 of mortgage debt and still makes money off trying to teach people about money habits.

If we all followed Carl Richards example, the economy would go into the toilet. Why do you support people who welch on their debts?

Linda

Donna Freedman
Donna Freedman
4 years ago
Reply to  Linda

I didn’t say I admired him. In fact I have trouble with the “walk away” mentality.

But I believe his book can help people, so I mentioned it.

Patrick Hill
Patrick Hill
4 years ago

Once my debts are paid off, I would love to have a round the world trip, from food tasting in exotic locations to cycling across mountains.

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