Let’s go over the virtues of living debt free?
Once you’ve been successful at paying off all of your debt you may be wondering what the heck to do with all that extra money you have. Don’t go bet it all on red. Here are some choices that will help you stay out of debt and keep your financial life in the positive.
Emergency Fund –
An important step to remaining debt free is to maintain a healthy emergency fund. At least 6 months of your total monthly expenses at minimum is best. If you can save more than 6 months that even better
You probably had great discipline with your budget to get debt free. Make sure as you adjust to a debt free life to continue with that same discipline around your budget. You may have more money at the end of every month but that doesn’t mean to go out and blow it all. Budgeting is the most important factor in keeping you debt free.
Once you have your emergency fund in place and you are rocking your budget like a ninja master how do you put as much distance between you and ever being in debt again? The real question is how do you make your money make money for you.
Savings Account –
A very safe place to store your money and have it make money for you is in a savings account. The reason your money is so safe is because the FDIC insures it for up to $250,000. However, your money will grow at a very paltry rate. Interest rates are currently in the 1% range. Think about it, you have an extra $10,000 lying around and if you earn 1% in a year you will have an extra $100 to your name. That’s not the worst thing in the world however you must remember the 2 wealth killers that are always trying to get you.
On most earnings of any kind you will have to pay taxes. That includes investment income. So, in the previous example of socking your money away in a savings account you will have to pay taxes on that whopping $100 you earned in a year.
Inflation is the true silent killer of everyone’s wealth. We live in a world where life continues to cost more every year. Inflation is currently around 3%. What does that mean in real world terms? It means that our lives as a whole cost 3% more than they did last year. So, even though you made $100 for keeping your money in a savings account you actually lost $200 of spending power. That is why people look to the stock market and other investments to make their money make more money for them.
Be wise –
Now that you are living debt free you want to stay that way so when you are looking at investing your hard earned dollars investigate the pros and cons to each investment.