Sooner or later, the day will come when you pay off all your student loans. Now, it might be in the more distant future or maybe it’s just around the corner. Either way, when it happens, you’ll feel like you now have extra cash every month since you no longer have to set aside that money for loan payments. So what are you going to do with that extra money?
It’s tempting to use that extra monthly cash to simply upgrade your lifestyle- you can eat out more frequently, enjoy weekend getaways, or join the expensive gym down the street. Though you definitely deserve to reward yourself for reaching your financial goal, you should also consider the long-term potential of that extra money.
So go ahead and celebrate your accomplishment by enjoying a lovely steak dinner or opening a nice bottle of wine, but before you splurge all your previously tied-up funds on things you probably can live without, consider doing these 3 things so you can get the most out of your financial achievement.
Set New Goals
Once you’ve paid off all your student loans, it’s time to reevaluate your financial goals. Ask yourself which debt, whether it’s credit card debt, a car loan, or a mortgage, is your highest priority. Getting rid of any credit card debt should probably be your number one priority since it usually carries the highest interest rate, and you could consider applying your extra money every month directly toward your credit card debt. Try using ReadyforZero’s free and easy plan where you can easily calculate just how much quicker you’ll pay off those credit cards with that extra money put toward your monthly payments.
If you’re doing well with payments or have no credit card debt, then it really boils down to your personal priorities. If you’ve been saving for a house down payment, consider using your extra money to boost that savings account to help you reach your goal faster. If you have kids, it’s never too early to set up a tax-advantaged 529 plan, which will help you pay for their education later.
But new financial goals don’t always have to be for the necessities. If you’ve been dreaming for years about a vacation to Bora Bora, set up your dream vacation fund. No matter what you’re saving for, make sure you use your extra money toward that goal, so it doesn’t get lost in frivolous monthly purchases. If you don’t make a goal or plan for that money, your extra cash can seemingly disappear and get baked into your monthly expenses.
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Build Your Emergency Savings Fund
It’s always a safe bet to set up or add to your emergency savings fund. This might not be the natural choice for someone recently out of school or early in their career, since bills, loan payments, and everyday expenses often leaves little left over for a savings account, let alone one just for emergencies. For months and years, you’ve been putting money toward a student loan payment, so why not just use that same money and deposit it directly into a savings account?
Redirecting the money into a savings account allows you to keep your previous financial goals the same, but gives you extra cushion for those unexpected times of need. Establishing a savings account specifically for emergencies is always a good idea so huge unexpected expenses like car repairs or medical emergencies won’t leave you stressed out, completely broke, or unable to pay. Setting up an emergency savings fund takes discipline since saving isn’t that easy, but since you’ve already had an amount of money set aside, simply rerouting it towards a savings account won’t feel like much work.
Consider Your Retirement Plans
Adding to your retirement plan doesn’t sound like a very fun idea, but when you start to calculate the tax advantages and returns on the money you put in, it might begin to sound a bit more appealing. Just a few hundred dollars a month put toward your retirement can make a huge difference in the amount of money you’ll have when you are ready to retire.
If your employer offers a 401(k) or 403(b), you might consider increasing the amount or percentage of income you contribute especially if your company matches your contribution. You could also consider opening your own tax-advantaged retirement account like a traditional IRA or Roth IRA, which offer tax breaks in different ways with varying eligibility requirements. With a little research, you can find easy ways to maximize your retirement by just redirecting your extra money every month toward these retirement plans.
Paying off your student loans is an amazing accomplishment; so don’t let all your hard work go to waste by making poor financial decisions after you’re done with student debt.