You did it! You are debt free (or nearly there)! You sacrificed a lot to get to this point: you deleted your meal delivery app, kept credit cards out of your wallet, negotiated a raise or a new job, and banished high-interest debt for good. You may not have dined out or travelled as often as you would’ve liked in the past 18 months—whether voluntarily or due to the pandemic—but this likely contributed to speedy debt elimination. And now… you’re free!
So, what do you do next?
Often, we’re so focused on paying off our credit cards, car leases and student loans, that we don’t really think about a plan for after we’ve accomplished this massive goal. It’s understandable why: after spending months, years, and even decades on the debt treadmill, we become so laser focused on worrying, scrimping and strategizing around it, that there’s limited mental bandwidth left to plan for what comes after. To suddenly have this wide-open space of possibility before you can be overwhelming and intimidating.
Just like that, you’re finally in a position to transition your mindset towards wealth-building after living in scarcity for so long. Potentially, you’re feeling so good about having all this extra cash flow that you find yourself either consciously tempted to indulge in excessive spending behaviours (because #selfcare I deserve this right??), or subconsciously influenced into making financial decisions that pull you right back into the debt cycle (aka: self-sabotage).
The key to leaving your debt-ridden past behind is to really explore what you want in the future and determine what actions your present self must take to get there. Take a few days to really reflect on this. Journal it out. Is it your priority to travel more? Save for your dream wedding? Buy a home? Start a business? Become the next Warren Buffet or Phyllis Newhouse? All of the above? Our life, work, and emotional values should be represented at the core of these financial goals in order to achieve effective progress.
Once you have a solid understanding of what this goal is, set up a separate savings account specifically for this purpose, and start redirecting a portion of your income to that account. Want a pro tip? It really helps to just automate this and set your dreams on auto-pilot. And if you want to save even faster, you need to resist the temptation to increase your spending just because your cash flow suddenly has more wiggle room. This is called lifestyle inflation or “lifestyle creep”, and it’s what prevents individuals earning well into the six figures from saving or investing, and essentially living from paycheque to paycheque. Keep up your conscious spending habits and redirect most of your former total debt budget towards monthly savings instead to watch your net worth increase!
As your financial goals become clearer and your pot of cash grows larger, double down on learning from those who’ve done what you want to do. Read books and attend webinars on personal finance and stock investing, watch YouTube videos on building businesses, follow your favourite real-estate influencers, consume their content, and slide into their DMs. While you’re saving the key is to learn, plan, and then execute. Once you’ve accumulated enough savings and confidence in how to move forward, you can begin to use that money to implement your plans. And remember, you don’t need to do this alone--our team of Financial Coaches at MakeCents can help you create and execute a clear gameplan.
Sometimes we all get so caught up in the debt repayment that we hardly give ourselves a chance to think about what will happen after we pay it all off. Maintain the habit of discernment to avoid lifestyle inflation. Question where each of your dollars are going and whether it’s a necessary or meaningful expense. Reflect, research, and keep learning. You’ve come this far and worked so hard to achieve debt freedom. You deserve to reap the rewards in the from of true financial freedom, and that requires an ongoing and conscious effort towards living within your means and diligent savings and investment efforts.
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