One core tenant of building wealth is to gain control over your cash flow.
By keeping your expenses in check while growing your income, you create financial power—because that gap between your income and expenses allows you to generate excess cash.
If you have debt, that excess is likely going toward repaying your balances right now. It might be a long hard road, but you know that eventually, you’ll pay everything off and reach debt freedom.
But have you thought about what happens next? What does life after debt look like?
Consider how much money you pay toward your debt per month. When you no longer need to make student loan, credit card, or car payments each month, that money is free to use to achieve other goals and build wealth.
In life after debt, you can focus on other priorities. You can save and invest more. You can fund short-term goals. You can start building wealth rather than digging out of the hole created by what you owed.
Life After Debt Is an Amazing Opportunity That Presents a Serious Challenge
Once you erase all the red in your balance sheet and no longer owe money on your loans or revolving credit lines, you suddenly have a lot more choice in how you can use your money next.
And more choice means more complexity.
More decisions to make (and get right). More tradeoffs to consider, and more options of which you must weigh the pros and cons.
This brings us to the fundamental question to answer when doing financial planning, and one you’ll face when you start your life after debt:
What is the best use of your available cash flow right now, given your needs, your goals, and your priorities?
Financial Planning Priorities to Address Once You’re Debt-Free
Once you achieve the financial milestone of paying down all your debt, and you free up that money in your cash flow, you have a few options for what’s next:
1. Increase your spending: You can allow lifestyle creep to set in and eat up that extra money that’s no longer going toward debt repayment. You may not go back into debt, but you might set yourself up to live paycheck-to-paycheck if you increase your spending to match your earnings.
2. Take a break: Once you complete a big financial goal like debt freedom, you might opt to take a break before jumping back into an intense pursuit of the next milestone.
3. Immediately increase your contributions to savings and investments: You can take the money that previously went toward debt payments and put it toward other savings goals, or start investing for the future.
4. Do a full financial review and reset your financial plan: Before you jump into any new commitments, take a step back and check in with the overall picture. How does it feel to be debt-free? What feels important now? Where do you want to go next?
It should go without saying that Option 1 isn’t really an option at all. If you want to make progress, achieve goals, build your net worth, and enjoy financial success, you can’t spend as much as you earn.
It might seem like a good thing that you’re not spending more than you earn. But you’re still stuck if you don’t have any cash to use to start building wealth.
And yet, this is what a lot of people end up doing for one reason or another. It’s tempting to spend more because you can now—especially if you’ve spent years diligently working to repay debt.
If this is where you’re at—you’re just tired and you need a break from the grind that’s inherent in working toward major financial goals—then do that instead.
Go for Option 2 and just take a break. Give yourself a breather. Don’t rush to make new plans for your life after debt and don’t obsess over what goal you’ll tackle next.
This is a completely reasonable thing to do, so long as you don’t sit around too long. Proactivity is key to financial success, so once you catch your breath, it’s time to consider Options 3 and 4.
Start Building Wealth Immediately
Choosing option 3—immediately increasing your contributions to savings and investments once you reach life after debt—is probably a very smart, rational thing to do.
If we’re just looking at the numbers, you might call it the objectively best thing to do.
Let’s say you put $1,000 per month toward your student loans. But when you paid everything off and owed $0, you could simply redirect that money from loans to your investment account.
Boom. Easy, painless way to save more and start building wealth.
You wouldn’t even feel it, because you’re used to paying $1,000 per month toward a debt payment. Now you’re contributing $1,000 per month toward growing your assets.
This is the money move that looks best on the spreadsheet. As financial planners, it’s probably the move we’d make ourselves. It’s the advice we’d certainly suggest to our clients, as we prioritize savings and long-term investments first and spending and short-term goals second.
But there is a small catch; a caveat that we’d also discuss with our financial planning clients:
Your future net worth number does look best in a spreadsheet when you immediately invest more now. However, people don’t live in spreadsheets. This is real life. Your life, that you experience every single day.
And what’s right for you today may not be the same as “the objectively correct financial answer calculated by our formulas and projections.” At least, it doesn’t have to be that way every single time you make a financial decision.
What’s often the best answer in terms of how we experience our real lives is one that:
- Balances the financial reality that saving and investing is very important…
- With what we feel and experience day to day, or how we use our money to get more of what’s most important to us.
And this is where Option 4 is worth considering before you tackle your next big financial challenge like increasing your savings rate or upping your investment contributions.
The Value of Taking a Break to Review Your Financial Life
If you just paid off a ton of debt, that likely took a lot of work, effort, commitment, and dedication.
It might have taken years of focusing on your debt repayment plan and managing your cash flow to get to this point.
Which is why you need to pause, step back, and give yourself a chance to check out where you are today and the direction you want to head next.
Breaks are good and healthy for us because they allow us the chance to get some space and perspective on what we experience. That perspective is critical when it comes to making decisions about what’s next in your life after debt.
Because it’s true: sometimes more money really does mean more problems. At least in the sense that you now have to make harder decisions because you have more options to choose between.
You might have had other goals when you started paying off debt. Do they still align with what you want for your life now? It’s okay to cross of a completed goal and realized things you used to want don’t appeal so much anymore.
Paying off debt has an amazing way of allowing you to see your priorities more clearly. You may feel like it’s time to start a family, or finally take a leap and quit your job to freelance instead.
Or you might find that it’s finally time to bump your retirement savings up or get serious about financial freedom.
As life changes and time goes on, so do our goals for building wealth. And that’s okay.
We just need to recognize that when it happens, and then act accordingly so we don’t find ourselves at the top of the ladder we worked hard to climb… only to realize it’s leaning up against the wrong wall.
Rest, Refresh, and Reset to Get Back into Action in Life After Debt
It’s okay to a break from driving toward a financial goal 24/7 (and celebrate that initial win!). Review and potentially redesign your list of goals and priorities.
Then turn the volume back up on your efforts and get back into action… even if, as it turns out, you don’t have a very specific goal to hit next.
If you can follow this system—take break and rest for a moment, refresh with a victory celebration, and review and reset your priorities as necessary—then you’ll be well-positioned to make the most of your opportunities in life after debt.