Many people focus on the first objective so much that, once accomplished, they have no idea what to do next. Getting out of debt may be the biggest concern for many people in dire financial straits.
Now, debt is not always a horrible thing. Understanding debt management can be beneficial, and you can sometimes leverage this money to achieve higher affluence. You probably have no idea how to leverage debt unless you’re money-savvy or running a business. For the majority of ordinary people, debt is a problem.
Fortunately, there are many tips and guides on quickly getting out of debt. Here, you’ll learn all you need to know about making double payments or bi-weekly instead of monthly to get out of debt twice as fast. You can also learn as much as you want about effective debt relief strategies and mechanisms. However, what happens when you’re successfully out of debt?
What’s your next step?
Today, we’ll spend some time discussing this less-known topic.
Figure out what got you in debt
When they extinguish the fire, the fire department doesn’t just hop back on their truck and leave. They sift through the debris to find what caused it. You need to do the same thing.
By figuring out how you’ve gotten into debt, to begin with, you’ll put yourself in a situation where you can avoid repeating the same mistake. The best thing is that the solution will be quite intuitive when you figure out the cause.
- If your income cannot sustain your lifestyle, you must either improve or change your income.
- If an emergency caused the debt spiral, you need to have an emergency fund to prevent it from happening in the future. You may also want to get the right type of insurance.
- If you become indebted due to identity theft, you must learn how to improve your cybersecurity.
This way, you can solve the problem at the source.
One of the most important things you need to abide by is to learn how to budget properly. This doesn’t require much footwork today, seeing how you can do it via an app. Modern apps have a sophisticated OCR, meaning scanning (even without a QR code) is reliable.
Still, you don’t need an app. You should track your income and expenses any way you see fit. Remember that, even weekly, there are usually too many expenses for you to track mentally.
You also want to learn how to set financial goals, create a budget plan, use budgeting tools, and adjust your budget to changing circumstances. Overall, this is a flexible thing more closely associated with problem-solving skills than accounting in a traditional sense.
You may want to use your assets to grow your wealth now that you have excess money. The best way to do so is through investing. While you may have only so many work hours within a day, a passive income creates returns without your active effort. A well-placed investment takes hours of research per investment and occasional monitoring via an app; it doesn’t take hours of your day as a side job or gig would.
First of all, you need to learn the basic principles of investing. Learn about investment strategies, choose how to diversify your portfolio, and sort your investments by risk.
Take a small part of your assets for the riskiest investments with the potential of the highest payoff. A lot of people prefer to go for crypto for this. According to Technopedia data, so many interesting crypto presales will give you a chance of early adoption with even minimal investment capital.
You should have done this while paying off your debt, but even in the aftermath, you should pick it up a bit. Get a side gig, negotiate a raise, or create a passive revenue stream. Ideally, do all three.
The key is that when your income increases, it will become harder to go into a red zone (budget-wise). If you combine your higher income with budgeting, you shouldn’t have an issue whatsoever.
Remember that this also creates a chain reaction where you have more money to invest. As they say, turning $1,000 into $1,100 requires work, but turning $100 million into $110 million is inevitable. Money makes money, and while the start is slow, growth is exponential.
In Rich Dad, Poor Dad, Robert Kiyosaki talks about how managing your liabilities and assets is the key to a healthy financial life. So, we’ve already talked about increasing your income and investing but what about the liabilities?
Well, there are many things you can do about this, depending on how much you’re willing to make an effort. For instance, living in a tiny house could drastically cut your expenses. Renovating your home to be more energy-friendly and opting for a sustainable lifestyle are two other things that would do the trick.
The thing is that you sometimes have to spend more to save more in the future. Home remodeling, buying a new car (with better gas mileage), or installing solar panels will all require an initial cost but will save money. Is this worth getting a new loan over? This is a controversial question with no definitive answer.
A lot of people get into debt because they’re spending recklessly. They max out their credit card to buy a new TV they don’t need when they already have a serviceable TV at home. The problem with this concept is that they usually go in the opposite direction and resort to austerity to get out of debt.
Still, if you squeeze too tightly, you might demoralize yourself and forget what all this sacrifice is about. Don’t forget to live your life and remember that austerity causes burnout. You need to reward yourself from time to time to avoid this.
Many people don’t understand that major life decisions are also financial decisions. Getting married is a perfect example since it both requires a massive investment and changes the way you file taxes.
Buying your home instead of paying rent is a life-changer, but it requires a loan that will span decades and affect everything. It will even affect the geographical job market available to you.
Sure, you can’t always plan things out but having a general idea of how to achieve some of these major goals or a general sense of how much they cost will help you. Just think about your long-term goals and see how your finances can help you achieve them.
With all its flaws and shortcomings, getting rid of debt is simple (difficult but single). You know how much money you owe, and you have a clear goal to pay it off (even if you don’t always have a clear idea of how to get there).
After getting out of debt, you’ll feel invincible, which could make you overconfident. Then, there’s the fact that you’ll have so many options, which puts you in front of the paradox of choice.
When you’re out of debt, the journey is just getting started.