Once we're debt free, then what?!!

[Ember]

Okay, this probably sounds like a very silly question, but we're getting there. Barring a disaster, we'll be debt free in the next few months. Come the summer we'll have an emergency fund of $5000 built up and we're planning on keeping $1000 float in the checking account (so using credit never becomes necessary). At some point in the future (hopefully a long time away) there will be an inheritance that will go directly into long term savings.

But what do we do day to day? It feels like we'll have all this extra money! (Thanks to some serious budgeting and cutbacks we're putting about $2000 a month on the debt.) How much should go to long term savings vs short term savings?!

Again, I feel like this next part should be easy, but we've been fighting the debt-monster for so long that I honestly don't know what to do once it's gone...

 

[GoofyGolferGirl]

Pat yourself on the back and save save save! Congrats on your hard work. I would put the $5000 in short term and everything else in long term, if you are saving for a house then adjust that to when you think you will purchase it. I you own already I would do as I orginally said. Just my 2 cents everybodies situation is different, but debt free is great anytime!!!

 

[KibbyCat]

Good for you!

My suggestion is simple:

Once your debt is completely gone, open a new savings account in which you put the money you WOULD HAVE paid toward debt. This can be used for non-emergencies, vacations, splurges, etc. You are now paying yourself instead of creditors, and you will have the option and freedom to be more generous.

 

[smkiya]

Okay, this probably sounds like a very silly question, but we're getting there. Barring a disaster, we'll be debt free in the next few months. Come the summer we'll have an emergency fund of $5000 built up and we're planning on keeping $1000 float in the checking account (so using credit never becomes necessary). At some point in the future (hopefully a long time away) there will be an inheritance that will go directly into long term savings.

But what do we do day to day? It feels like we'll have all this extra money! (Thanks to some serious budgeting and cutbacks we're putting about $2000 a month on the debt.) How much should go to long term savings vs short term savings?!

Again, I feel like this next part should be easy, but we've been fighting the debt-monster for so long that I honestly don't know what to do once it's gone...

CONGRATULATIONS! Breathe a large sigh of relief...

and then, perhaps research investments or consult a financial planner.

 

[KristinU]

Congrats! We are debt free except for our house and we have what Dave Ramsey calls "sinking funds" - seperate savings funds (in our case seperate ING accounts) for things like car replacement, vacation and travel, home repair (currently beefing up for a new roof and a bathroom remodel), etc. - we put some things on kind of an auto-pilot in the budget (like X amount monthly towards vacation and travel) and then sometimes point any extra to whatever fund needs beefing up in anticipation for whatever expense if coming down the pike. And we also throw extra at the mortgage to get that paid off sooner.

Is $5000 enough for you to live on for 3-6 months? We have 6+ months of living expenses as our emergency fund...you may want to consider adding more to that depending on your expenses and situation.

When we paid everything off we also started giving a higher percentage of our income to church and charity and putting a higher percentage towards retirement and our DS's 529 plan.

Again, congratulations on your accomplishment!!!

 

[BuzznBelle'smom]

Contacting a financial planner is a good idea. Some other thoughts--make sure you're saving for retirement. You can hardly have too much--who knows what will happen. Save for some short-term goals, like a new car or a vacation or whatever floats your boat. Make sure you have any long-term goals covered--if you have children, that could mean college, weddings, etc.

Once you've got the ball rolling on those things, you can feel free to ramp up your lifestyle--if you choose. Nothing wrong with splurging on a nice car or vacation, if your other bases are covered. If you can't bring yourself to splurge, consider becoming a (small scale) philanthropist. There are many great charities that aren't getting the donations they once were, due to the economy. You would be in a position to earn yourself some major karma points.

 

[minnie1928]

Are you maxing out your retirement contributions? If not, then I'd start doing that. Anything beyond that I'd put in some longer term investments (type would depend on your comfort level with risk).

 

[wdwfan16]

Okay, this probably sounds like a very silly question, but we're getting there. Barring a disaster, we'll be debt free in the next few months. Come the summer we'll have an emergency fund of $5000 built up and we're planning on keeping $1000 float in the checking account (so using credit never becomes necessary). At some point in the future (hopefully a long time away) there will be an inheritance that will go directly into long term savings.

But what do we do day to day? It feels like we'll have all this extra money! (Thanks to some serious budgeting and cutbacks we're putting about $2000 a month on the debt.) How much should go to long term savings vs short term savings?!

Again, I feel like this next part should be easy, but we've been fighting the debt-monster for so long that I honestly don't know what to do once it's gone...

SAVE - for a house downpayment, to pay for the next car cash, to pay the next vacation off before you take it, to retire without the need for that inheritance (they are never for certain), save for the kid's college (if you have any) or any other item you might want in the future. Max out your 401Ks. You get the idea.

 

[alyssa810]

BUY DVC!

 

[indimom]

Payoff the mortgage (unless you are including that in being debt free), start savings for college, invest for retirement, and build a bigger fund for the larger purchases that come along (vehicles, new roof, etc...) ENJOY THE PEACE of BEING AMONG THE FEW, THE PROUD, THE DEBT FREE!!!!!!!!!!

 

[big_red_s]

Congradulations.

Seriously, in a society where you are encouraged to get into a financial slavery from the moment we graduate high school, your accomplishment is huge.

I applaud you from the bottom of my heart.

About what to do...don't get in debt

 

[Chicago526]

With the down economy many experts have changed their recomendations to 8-12 months emergency funds, rather than the 6 months that used to be the rule of thumb. Finding regular good paying employment may take as long as a year, sometimes longer depending on location and industry in question.

So, I'd start saving towards 8 months living expenses, also a car repair/replacement fund (even if your cars are new. if you stat now by the time you want new ones, you can pay cash in full! ). And if you want to squeeze in a vacation while working towards those goals, that'd be okay too.

Once your emergency fund is maxed out (to whatever amount seems right to you) then I'd personally max out my 401k and IRA accounts (or whatever accounts you're eligable for). If you have kids and want to pay for college, then after retirement is maxed out, max out a college savings plan. And if after retirement and college is maxed out, anything left over I'd use to pay down the mortgage faster. Personally I always leave the mortgage as dead-last to pay back. It's secured by the house so if the poop hits the fan, you can always just sell it and pay off the loan, plus the interest rate is pretty low, and is a tax write-off (and no, I'm not one of those silly people that think you should have a mortgage JUST for a tax write off, I'm just saying it helps lower the cost of the loan due to the tax break).

As for your future inheritance, I would NOT count that in your retirement planning (or any other financial planning). Many things can happen between now and when your relative dies, and you can't count your chickens before they are hatched. DH and I both will likely receive good sized inheritances and I don't count that money in our financial planning in anyway, shape, or form. Too many things can cause that money to be spent before we ever see it, and I don't want to be in a position that we didn't save enough because we were counting on an inheritance that never materialzed because our loved ones spent it all on nursing care.

 

[mster425]

congratulations!!!

We are in a similar situation and will be out of debt except for the house in Feb.

We are planning to grow our short term savings account in case one of us loses a job or has a health crisis- we want one years income. That should take a while! But if we pay as much toward it as we do toward debt- not long at all!!

Feels good, doesn't it

 

[bumbershoot]

Check out llnoe.com (unofficial, it seems, dave ramsey forum) or check out DR.

After being done with debt, get a fully funded emergency fund. Max retirement contributions. Pay off house. Fill college fund coffers if that's important in your life. Start donating money.

Have fun.

 

[tinkarooni]

Congratulations! We have been debt free since last year about this time (except for our mortgage) and never find a lack of things to do with our money.

I would recommend saving for the all the unexpected. We currently are paying extra on the mortgage, saving into different accounts for retirement, college, new car, vacation as well as constantly bulking up our emergency fund. 8-12 months is the amount experts recommend for your EF nowadays.

On the flip side we sleep better knowing that we have rainy day funds put aside. We may have the every now and than splurge, I'm planning a new years eve mani and pedi and why not? I am so looking forward to it and not being in debt gives you the freedom to enjoy those types of things now and again. These treats are fun and much more enjoyable when you are debt free.

Congrats again! It's a wonderful achievment.

 

[ontariomonkey]

I would definitely increase that $5000 emergency fund to 6 months of living expenses. So that would be short term savings, lower risk, easily accessible.

After that, I would prob spend $250-$500/mo on things that I bet you had to deprive yourself of while you were paying down the debt. Go to the movies, eat out or put this money towards a vacation fund.

The rest, I would put away for your retirement.

Congrats!

 

[andrews_dad]

Good for you!

My suggestion is simple:

Once your debt is completely gone, open a new savings account in which you put the money you WOULD HAVE paid toward debt. This can be used for non-emergencies, vacations, splurges, etc. You are now paying yourself instead of creditors, and you will have the option and freedom to be more generous.

This is good advice in the short run, but you don't want to leave the $$ pile up in a simple savings account. Terrible return. Sounds like it is time to open a Roth IRA and put in your yearly max. IMO, this is the PERFECT time to invest if you have at least 15 (or ideally more) years before retirement age. This market will come back to shape and your money will come up with it!

 

[Ember]

I wanted to add (because a few people have commented on it) that I'm not counting on the inheritance in any of my planning, other than to note it will go into savings once I receive it. My mother has end stage terminal cancer. Trust me when I say I'd gladly never see a cent of that money and keep my mummy. However, the cold harsh truth is, I will most likely receive it in a few months. I'm in Canada, so her care is covered by our health care, palliative benefits, and her work benefits. Any out of pocket expense is reimbursed. A portion of the money will go towards her last wishes regarding burial, but the rest will be saved. It's not even a huge amount of money, about $60 or $70k, but I do feel some peace knowing it won't just be handed over to creditors thanks to our hard work.

There will be some logistical issues over the next two years that are not "normal" for most families. Right now our lives are dedicated to the care of my mother, and will remain so until she isn't here any more. After that my husband and I will be making a pretty large move across the globe to South Africa for 2 years or so for him to do his post doctoral studies. (I will have the chance to do work as a professional volunteer with a government agency that uses Canadian teachers to promote local teacher training! I'm pretty excited about this!) We're already in contact with both the researcher he'll be working with and the agency I'll be working with. He may then do a second post doc somewhere else before we actually settle down, probably in the UK - as this is where many of the leaders in his area of research are.

We are renting right now and after some serious talks have decided to keep doing so for the next while. I get that many people feel investing in a home is the only way to go, but we have some pretty good reasons for not doing so at the moment.

Anyway, there's more about my life then anyone needed to know! I just wanted to address the issue of the inheritance directly.

 

[Ember]

This is good advice in the short run, but you don't want to leave the $$ pile up in a simple savings account. Terrible return. Sounds like it is time to open a Roth IRA and put in your yearly max. IMO, this is the PERFECT time to invest if you have at least 15 (or ideally more) years before retirement age. This market will come back to shape and your money will come up with it!

I'm only 29, I think I have a few years left.

 

[mom2faith]

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