Today we will begin answering a question that the average American will (sadly) probably never need to ask:
What do I do with my money when I'm debt free (minus the mortgage)?
We are eagerly awaiting this day in our family and we anticipate it arriving by the end of 2008. We have been aggressively attacking our debt for 10 months now and have paid off over $14,000. We have $8,700 to go and are fairly confident that we can cover this amount by the end of this year. When we have paid off our van, what will we do with our money?
Well, our situation is a bit different than some of yours, I'm sure. Right now, my husband is working two jobs. One job is necessary for our day to day living expenses. The other is necessary to pay off our debt. When our debt is paid off, he will no longer be working his second job, so our income with decrease quite a bit.
But let's assume that you have not picked up any extra jobs while paying off your debt and that your income will remain the same. And let's say that your debt snowball amount was $500 when you paid off your last debt. So now you have an extra $500 each month. What do you do with it?
You need a (FFEF) fully funded emergency fund. This amount of money should be at the very minimum 3 months of living expenses. I personally recommend 6 months or more. Use your debt snowball amount to fund your FFEF. Unlike the baby emergency fund you had before, this emergency fund is good for gaining interest. This isn't investment money, but go ahead and put it in an account that yields more than your average savings account. Try a money market account with no penalties and checkwriting privileges. This emergency fund is NOT for wealth building. It is simply in place for when it rains...and it will rain.
Next week, we will begin talking about investing and saving for your children's college educations.
Also, before you leave, please vote in the "How much consumer debt do you have?" poll on the left side of the screen!
Links to other parts of this series: