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If you can say the statement above, congratulations are clearly in order. With consumer debt in the United States totaling 14.08 trillion dollars, according to Experian, it is hard to see a life without consumer debt. This is why the statement “I am debt-free” is so powerful.
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To be specific, when I say someone is consumer debt-free, I am referring to individuals that do not have the following debts;
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- Auto Loans
- Student Loans
- Credit Cards
- Personal Loans
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The technical definition of consumer debt includes mortgage loans and HELOCs, but for the sake of this article, we will consider you debt-free if you have eliminated the four types of debt mentioned above.
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For most individuals, it is hard to have the combination of discipline, income, and good fortune to say you are consumer debt-free. But now that you have reached this point, you may be asking yourself, now what? You may have focused so much of your energy on paying off debt that the next step can be a bit fuzzy.
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I have heard from some it can be scary not to have any debt. You have worked hard to reach this level of financial security, and you do not want to mess it up or go back into consumer debt. To ensure you stay on a healthy financial path, I want you to consider the five steps below.
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- Save 15% of your income
- Invest in yourself
- Give with a purpose
- Increase your lifestyle
- Pay down your mortgage
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Save 15% of your income
Now that you are consumer debt-free, it can be easy to experience a trend of increased spending due to the extra financial flexibility in your life. Don’t let this happen. Take the gross income you will earn and invest 15% of that money in a tax advantage retirement account. This could include an employer’s 401k, Roth IRA, SEP-IRA, or a traditional IRA.
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The principle surrounding the 15% is based on the idea of having a goal of $1,000,000 saved in retirement. Please use this principle as a rule of thumb. Given your lifestyle, some may need to save more or less given your personal circumstances. You should also not save for retirement at the expense of your human capital.
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Invest In Yourself
After you save 15% of your gross income, it is time to invest in yourself. Life can be complex. We all have faults that need to be paid attention to. And in a lot of cases, money is needed to address the issue. Investing in yourself can be education, but it can also be paying for things that make your life better.
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There are two ways you can address investing in yourself. You can spend money to improve on a skill, or you can spend money to ensure the task gets done. When you have money, the art of managing your wealth is deciding which is right for you.
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For example, do you take a cooking class or hire a chef? Do you clean your house or find someone to clean it for you? Things to enrich our life sometimes take money. Deciding which ones are right for you is a personal decision.
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Give with a Purpose
Giving can be more than just giving money to a need that you care about. There are residual benefits to giving that most do not consider. The first I would like to cover is the giving community. Good people want to be around good people. Even though everyone who gives is not a “good person” it is a good indicator that someone may share common values with you. Having money is not fun unless you have a community to share the journey with. Giving is a great way to build a community.
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There are more benefits to giving that I cover in this article, but the last benefit I want to cover here is the continued discipline you must have to give regularly. There is something special that happens when you live on less than you make, even past your long-term savings. When you give, there is a feeling that the money I earn is for more than myself. The behavior change associated with that mindset shift propels you to build more wealth to give even more.
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Increase your lifestyle
Many people are surprised how many of my clients I must encourage to spend more money. They think I am all about saving, giving, and sacrificing, but there is a point of where the best thing you can do with your money is to spend it. After you have saved 15%, fully invested in your human capital, gave at the level your heart desires, I recommend you find a quirk and have a ball! Yes, I said it. Spend it. And I am not asking; I am telling you.
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Life is too short. You cannot take it with you.
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Pay down your Mortgage
If you are one of those exceptional individuals that still have money left after all this. My last piece of advice is to pay down your mortgage. Most wealth is transferred down through real estate. Not that your heirs would want the house that you live in, but they can make a profit on the appreciation over the years.
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As far as personal finance goes, having a paid-off mortgage provides a lot of flexibility. Housing expenses can be a significant expense in retirement. Having this reduced by paying off your mortgage gives you more money to apply towards healthcare expenses and traveling.
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There is a lot to look forward to when you have paid off your consumer debt. My last piece of advice is to enjoy the financial journey. Only a few people are ever able to yell, “I am debt-free!!”
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[sh_btn link=”https://calendly.com/deasil/15min” target=”_blank” shape=”squareRounded” style=”dimension” size=”extralarge” color=”rgb(27, 54, 156)” bordercolor=”rgb(11, 0, 0)” bordersize=”0″ fontcolor=”rgb(248, 247, 247)” enablehover=”enable” enableicon=”enable” iconbg=”square” iconset=”fontawesome” iconfa=” fa fa-calendar”]Schedule Your 15 min Consultation Now![/sh_btn]Randall Avery, CFA
Financial Advisor │ Author │ Public Speaker
R.S.A. Deasil Advisors, LLC
Office: 531-333-2745
Email: Deasil@rsadeasil.com
Website: www.rsadeasil.com
P.S. If you would like me to speak at your next event, please click HERE
[sh_divider style=”shadow” shwidth=”wide” spacetop=”20px” spacebottom=”20px” totop=”disable” color=”rgba(0,0,0,0.15″][sh_divider style=”none” shwidth=”wide” spacetop=”1px” spacebottom=”1px” totop=”disable” color=”rgba(0,0,0,0.15″] [sh_columns number=”two-thirds”] [sh_column][sh_headerdouble size=”h4″]Hacking The System[/sh_headerdouble]
While working with clients, Randall realized there was a missing process that individuals were not performing when choosing to use their money. Motivated to fill this gap, Randall developed three models to ‘Hack The System’ and allow individuals to Create Your Own System (CYOS). Randall hopes effectively using these models will help individuals identify the best moral and ethical use of their money.
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