I’m sure you’ve been keeping your head down and hustling hard for a long time to pay down your debt as fast as you can. Perhaps you’ve even finished that step (if so, congrats on becoming debt free!) and moved on to building up your emergency savings account. You may be coming to the end of that goal as well and you’re probably thinking, what’s next? How do I ensure a bright financial future for myself? Well, I’ll tell you. But first, if you’ve successfully paid off ALL your debt except for your mortgage, and you’ve managed to save up 3 to 6 months of expenses in a savings account, you deserve a round of applause for a job well done! And if you’re not quite there yet but working steadily toward those goals, keep up the good work and start looking ahead to your next steps as well! You’ll be there before you know it.
There is one step I consider mandatory once you’ve reached this stage. The other steps listed below should be done only if they apply to you personally. Here are the next steps toward a bright financial future.
Save for a down payment on a home
If you plan to buy a home, your next step is to save enough money for a sizable down payment. I know, you’ve just saved all this money and thought you were done, but this is an important task. You cannot use the money you’ve already saved for your down payment because that money is earmarked for emergencies (as in job loss or your car breaking down). So how much money should you save for your down payment? That will depend on what kind of house budget/price range you’re looking for and what percentage you plan to put down. Generally 10% is ideal, but the more you put down the lower your monthly payments will be. For more information check out Dave Ramsey’s Home Buyer’s Guide.
Start investing in retirement
This is a mandatory step you cannot afford to skip! Once you’re done saving for your emergency fund and for your house, it’s time to start investing in your future. Start with your employer’s 401(k) plan to take advantage of any company matching, then invest the rest in Roth IRAs. Your total investment should be 15% of your gross household income. Yes, that means your monthly take home pay will decrease. However, your future self will thank you for the sacrifices you’re making now to make sure you can retire with plenty of money.
Save for your childrens’ college fund
While still investing in retirement there is something else you should invest in too. If you have children, you should be saving money for their education. You could do this by setting aside money each month and putting it in a savings account. But I would recommend putting the money in a 529 college savings plan. This plan invests your after-tax dollars so your money grows with time. Also you will never have to pay taxes on the growth as long as the money is spent on college education expenses.
Pay off your mortgage early
If you are currently a homeowner you know how frustrating it can be to see how much of your monthly mortgage payment is going toward interest instead of principal. But if you could pay off your home early, think of how much less interest you would have to pay! Actually, thinking about it isn’t enough. You can find out actual numbers right now by going to this Mortgage Payoff Calculator and entering your loan numbers. You can also enter how much additional principal you would like to pay off per month. It will show you how soon you can pay off the house and how much you’ll save in interest payments. Warning, doing this will light a fire under you to get that house paid off as quickly as possible!
By following these steps you are ensuring a bright financial future for yourself as well as the rest of your family. Yes, these steps will take years to complete, and right now it might seem like an eternity. But if you stay focused and determined, you will someday find yourself in a position to do things in your life you never thought you’d be able to afford to do, and to help people and causes in ways you never thought possible. So now that you have your game plan, get to work! Your bright financial future awaits!