What’s Next? A Guide to Setting Long-Term Goals After Paying Off Debt

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Paying off debt successfully requires a lot of determination and hard work, oftentimes at the expense of other financial goals. This can push back your goal of saving for retirement and investing to build wealth. As someone that's dealing with the plight of student loans, I have neglected many other financial priorities in hopes of being debt free sooner.

I’m almost 30 with hardly anything in retirement.

When I think about where my money has gone, the majority of it has been spent on eliminating $43,000 in student loan debt. Other areas of my financial life are similarly abysmal.

I often dream of being debt free and getting started on my long-term financial goals, but from what I've heard from others, reaching debt freedom can be a bit anti-climactic and leave one wondering where to go next. Paying off debt leads you down a certain path, until you reach the end.

But what’s next? What comes after debt and your basic financial goals have been met? What long-term goals and benchmarks should you have in place, so you can build wealth?

Here are some guidelines to get started:

1. Reevaluate Your Budget

Now that you are debt free, you need to adjust your budget with likes of YNAB. While it may seem exciting with the influx of “extra” cash in your budget, it’s key to give every dollar a job.

It can be tempting to spend the money that previously went to debt — but this will quickly lead to major lifestyle inflation and possibly down the road back to debt if you are not careful. Examine your priorities, lifestyle, and long-term financial goals. Now, put every dollar to work in a new and improved budget. And if possible, work towards maxing out your retirement accounts and savings goals.

I’ve already decided where my roughly $1,000/mo to debt is going once I’m debt free: retirement, investments, and travel.

2. Replenish Your Emergency Fund

Did you have an emergency fund while in debt? Some people don’t as they consider debt an emergency, while others take the Ramsey approach and have a $1,000 buffer, which would cover basic emergencies.

Standard personal finance advice tells you to save between 3-6 months worth of expenses in an emergency fund, but I believe that 12 months is even better. Debt can occur for a variety of reasons and to make sure you don’t go right back into debt, you need to create a cushion. An easy way to do that is to set aside a portion of your paycheck every month to your savings or emergency fund. You can do that automatically with Acorns Smart Deposit. You can automatically set aside a portion of your paycheck into your checking, investing and retirement accounts. Plus right now you can get $75 when you sign up for direct deposit with Acorns.

If you lost your job, got in a car accident, or had a medical emergency, a 12-month buffer should be able to tide you over, and also save your sanity.

3. Max Out Your Retirement

Retirement is often one of the biggest casualties when it comes to paying off debt. It’s hard to think about paying for something that could be decades away when you have a large debt balance right in front of you. Once you achieve debt freedom, it’s important to reclaim this financial goal and make it work for you.

This means no more messing around. Max out your retirement account with all avenues available to you, such as you're employer-sponsored 401k, and/or Roth IRA. Maxing out your retirement accounts will help you “catch up” a bit from your time spent on paying off debt.

4. Invest Wisely

Paying off debt early is a guaranteed return on investment — you are avoiding annoying interest rates and excessive fees. But once you become debt free, it’s key to start really investing. While many people in the trenches of debt repayment feel as if they are too risk-averse to invest much, or even at all, being debt free gives you more wiggle room to take risks.

Start by creating a strong and diverse investment portfolio of stocks, bonds, mutual funds and exchange-traded funds (ETFs). Determine your level of risk and start investing and watch your money grow. You can start by using Betternment’s new goals feature, which helps you plan for a variety of financial goals.

5. Make a Plan for Big Life Goals

Now that you have the basics covered like your budget, emergency fund, retirement, and investments, it’s time to save for something fun: big (and sometimes scary) life goals. Debt has a great way of dashing dreams, but now you can let your imagination run wild a bit.

What big, life goals do you want to accomplish, that you haven’t already? Do you want to buy a house? A new car? Are you starting to think of having children? Are you dreaming of a once-in-a-lifetime travel expedition? Or perhaps quitting your dreaded day job?

Whatever your big life goals are, you need a plan. Make sure to implement these things as part of your budget. You can start by creating targeted savings accounts and automating funds each month, to ensure you are staying on track. Capital One 360 has great sub-savings account options with the ability to set up goals, so you can see where you are at in the process.

After paying off debt, you deserve to live a little and plan for life’s grand adventures. Just make sure you budget for it, while not reverting back to the dreaded D-word.

What's Next After Big Financial Goals?

Paying off debt can be exhilarating, but it can also leave you with more questions than answers. There is a lot of information on steps to get out of debt, but not a ton of advice on what to do next.

Use this guide as a primer to get started on setting up long-term financial goals after you pay off debt, so you can be financially strong and start enjoying life.

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  1. One thing that I can tell you from personal experience, once you hit “no debt” make sure that you are also clear of any potential for expensive needs that may continue to require it. What I mean is, reaching debt level zero with very little money in the bank means that you may still need to fall back into debt, if only temporarily, quickly. Know what expenses are on the horizon (car repairs for example). Tabulate these “hypothetical” expense totals and add them to your *current* level of debt (this exercise assumes that you have $0 in the bank). Those hypothetical expenses plus your actual debt constitute your “effective” debt amount. The entire point of doing this is to have a better idea when you are not just technically debt-free but *also* substantively debt free. If you reach $0 debt, have $0 in the bank, but you also know that your car needs $1000 in repair soon — you’re actually still $1000 in debt for all intent and purposes.

  2. I enjoyed this post Melanie. Having a solid plan for those funds is a must post-debt. After I had paid off my debt, I fully funded the E-Fund and we now max out the retirement accounts which is a must for us since time is less on our side to early retirement.

  3. I think whether paying off debt or investing, I think your plan needs to be re-evaluated especially at major milestones. Paying off debt is exactly that and having a game plan is a great idea Melanie.

    1. It’s important to reevaluate at all stages of life — especially during big transitions! And if it’s not working, change it up! But have a plan.

  4. I can definitely see how you could become a little lost after debt repayment. These are great areas to focus on!

  5. I think it’s so easy to get out of debt and then splurge on all the things you went without during the repayment phase. I think this list is so important because it calls us to remain disciplined even after the time of greatest restriction.

    1. Yes! I think it’s common to get back into debt if you don’t know the “why” you got into debt and if you don’t have a plan.

  6. Great article here! While I am still very much in the “pay debt” phase, this is a great thinking piece to consider as i come closer to being debt free. I really like the idea of maxing out the retirement fund because in the long term that money is going to grow into a sufficient chunk and is a great protection against any financial bumps once the age puts a limitation on our earning power

    1. You are at the moment where it’s critical to start thinking about what to do with your money after debt. You are so close! Don’t forget about investing, too! Retirement is just one part of that.

  7. I remember the moment I realized I was no longer in debt. I felt free, independent, strong. I carry that feeling with me now that I have savings. I can’t imagine what it must be like having to work so hard to pay off student loans (I worked very hard to get scholarships and eventually landed a full scholarship to study abroad). Great tips and I love what you said about putting every dollar to work. Mine goes back into a masters degree and some time off!

  8. I don’t think I can manage to think that far in the future 🙂 It’ll be years before we are debt free. But, like you, I plan to beef up the emergency fund and dramatically increase retirement contributions. We’ll probably sqeeze in a really nice vacation, too!

  9. I think you’ve managed to wisely pinpoint some very necessary things to do once the debt is no longer an issue.
    I’d like to focus more on the last step, though – because I think it is maybe even more important.
    While being in debt, it can be clear (at least for those who understand the meaning of debt) that getting out of it is the single most important thing – regardless of any long term goals you might have.
    But after being debt free – I think it’s a good opportunity to revise your long term *life* goals. What do you really want to do? Why should you work to be financially free?
    Becoming debt-free has an “easy” motivation (easy in a way that it is the outcome is very visible and sensible). Becoming financially free is often a far-fetched notion and thus might be less motivated.
    Working on the “why” is an essential thing to do, in my opinion.
    I wrote a blog post about “why” being the first step ) – I would love to hear what you think.

    1. I agree with you. Being debt-free is not the end goal. When it is, that’s when we find ourselves lost and confused. It’s a step in the journey to reach other goals. After your debt is gone, then you can think about bigger picture items — retirement, changing careers, investing, and other really big life changes. Having a plan is key and working on the why you got into debt is essential as you said. I’ll definitely check out your post!

  10. Such a great post! I’m about to be debt-free and it’s nice knowing what my next steps are. I can’t wait to add more to my retirement, increase my emergency fund and take a fun trip!

  11. These steps are all necessary ones to take after achieving debt freedom! I also can’t wait to start putting more money toward retirement and travel. While paying off debt may be a little anti-climatic, I’m looking forward to having the freedom to do what I want with my money for once!

  12. Melanie, I think re-evaluating your budget after eliminating your debt is key! I know I’ll be doing the same thing once I get my debts paid off, if not before. I like to have things prepared in advance 🙂 If you don’t re-evaluate and re-distribute your money toward other financials goals, it’ll be too easy to spend it all on eating out, shopping, travel, etc and still have nothing going toward building wealth. Thanks for sharing!

    1. Thanks for stopping by! I think it would be easy to spend that money on things that you have gone so long without — which is why it’s so important to re-do the budget and allocate those funds towards your next goal.

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