You paid off your student loans – now what?
Sit back and enjoy that extra cash flow, right?
Well, it’s not that simple.
This is a very important time in your life (you’ll learn why below).
Here’s a 2-step process for figuring out what’s next after you’ve paid off your student loans.
Paid Off Your Student Loans – Now What?
# 1) Celebrate!
Financial milestones are few and far between. It’s OK to celebrate this one. It’s an accomplishment.
Take a small chunk of your monthly payment, say 10%, and treat yourself. Maybe it’s a round of drinks with friends, while toasting to Sallie Mae. Or, go to the butcher and get a filet, if that’s your thing.
Do something you wouldn’t have.
# 2) Set Financial Goals
A milestone such as this can often spark thoughtful dialogue between yourself and/or spouse. This increased state of awareness, aka an inflection point, you can’t let go to waste.
Inflection points change the way we make decisions. They present a rare opportunity where we’re able to see the forest through the trees.
That’s why now is the perfect time to set financial goals.
HOW TO SET FINANCIAL GOALS
A step-by-step process for setting financial goals that connect the dots between your money and your happiness. Simply opt-in below to have it sent straight to your inbox!
- Deciding on what it is you want
- Setting a strategy to accomplish your goals
While I recommend going through a more formal financial goal setting process, for someone who paid off their student loans, here are some suggestions:
Make A Decision Of What Role Debt Will Play In Your Life
Now that you understand the consequences of debt–make a choice about the role debt will play in your future.
For example, commit to never to go in debt again, unless for a mortgage or something that appreciates (like a business or real estate investment).
Pay Off Any Other High-Interest Debt
If you have other high-interest debt, you may want to reallocate the amount which was going towards your student loans to this debt.
Start Investing or Invest More
Now is a perfect time to start investing or increase the amount you’re investing.
Ideally, you should automate this by:
- Increasing your 401(k) contribution
- Setting up automatic withdrawals to an IRA or taxable account
Plan For Other Big Expenses In The Future
What’s life have in store for you in the next few years? A car? A new home? An engagement ring?
Look ahead into the future.
What can you start saving for today?
Is There Anything You Can Buy To Increase The Quality Of Your Life?
Now that your extra income won’t be going to pay off your debt, is there something you can buy that would increase your happiness?
Maybe it’s renting an apartment closer to work to decrease your commute.
Maybe it’s building a bigger emergency fund so you can sleep better.
Money can buy happiness but it’s not in the way you most expect.
What Not To Do
You want to optimize each dollar you spend.
Until now, your student loans forced you to spend a good chunk of your income on paying off debt. This was money well-spent, as anything that increases your autonomy (such as being debt free) has shown to increase your happiness.
Now, that this money is free, it needs to have a purpose.
What you want to avoid is lifestyle creep. The term used to describe someone whose expenses rise as cash flow increases.
As lifestyle creep occurs, more and more money goes towards “luxuries.” Now, those luxuries become necessities and the cycle doesn’t stop.
So, yes you can now afford more but think carefully about what you want to afford.
You have a rare opportunity to make a good decision.
Don’t let it go to waste!