If you’re someone who has recently paid off their student loans, you may be wondering what’s the next best step to take.
Although we paid off our student loans early, my husband had a $600+ monthly student loan payment. Now that student loans are paid off, that’s an extra $5,000 a year.
In this post I’m sharing actionable things you can do to reach your financial goals.
Here’s a list of the best things to do if you’ve fully paid off your student loans.
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Open a savings account
Now that you’re student loans are paid off, it’s time to open a savings account if you haven’t already. Savings accounts are going to do you a whole lot of good now that you’re moving into new financial goals.
What’s a savings account good for? It’s a great spot to store money at a good savings rate, while also getting to access that money anytime with no fees or penalties. For example, I like to store my emergency fund in my savings account, and this is also where I stored my house downpayment savings when I was gearing up to buy a house.
Move your money to a high-yield bank savings account. If you’re with a local bank that you’ve been with forever, it’s probably offering something insanely low like 0.03%. That’s nothing. CIT Bank currently offers up to 1.70%. You can move your money and emergency fund to a high-yield savings account to save even more money. Open a CIT Bank account here.
Ally Bank’s savings account is also killer. It’s currently 2.25% but like all banks, that rate always changes.
Start an emergency fund
If you don’t have an emergency fund already, now is a great time to get started. An emergency fund is a safety net for you in case anything happens, like your car breaking down, a medical expense comes up, your dog goes to the vet, etc.
A great place to start for an emergency fund is $1,000, but your ultimate goal should look like 6 months worth of living expenses. If your monthly expenses are $3,000 every month, this means you want to save $18,000 in your emergency fund.
I know this sounds insane, but you don’t need to have $18,000 saved this month. Take it $1,000 at a time. Don’t overwhelm yourself but also understand that you are capable of doing this.
You should only use your emergency fund in real emergencies like:
- Job loss
- An unexpected trip to the vet
- Medical emergency
- Car or house repairs
I park my emergency fund in an Ally savings account with a current savings rate of 2.25%. I used to have my savings in a regular local bank account that grew at .01. It made pennies each year. Check what your bank is offering for their savings account. If it’s a weak .01%, check other banks. Online banks are really killing it in the savings rate area because they have low overhead (since there are no in-person banks, they save money) passing the savings onto you.
Read this: 5 Step Guide To Starting An Emergency Fund
Pay off credit card debt
If you have credit card debt, now is the time to get rid of it for good.
Write down all the credit card debt you have. Find the interest rates for each credit card. You can find the interest rate on monthly statements or by contacting the credit card provider.
There are 2 different debt payment strategies: the avalanche method and the snowball method.
The avalanche method works by you paying off your highest interest rate debt first and going in that order.
The snowball method works by paying off the credit card with the smallest balance and working your way up from there.
The avalanche method is the smartest way to save the most money since you’re paying off high-interest rate debt, but the snowball method keeps you motivated and inspired to keep paying off debt.
Once you’ve gotten rid of your credit card debt, do these specific things to make sure you never go into debt again. First, if you’re not great with credit cards and have a hard time with paying them off on time, it might be time to cut them up in pieces or get rid of them. It’s also a great time to start a budget because credit card debt most likely wouldn’t be happening if you were following a budget.
Read this: 7 Step Guide To Pay Off Credit Card Debt
Save for a home down payment
Once student loans are paid off, you may be thinking about buying a house in your future. If a house is in the cards for you, start saving for a house downpayment now. The more you have saved, the lower your monthly mortgage payment. If you have enough saved for a house down payment (20%) you won’t have to pay for PMI (private mortgage insurance).
When saving for a house downpayment, make sure to store this money in a savings account that you have easy access to. Note that I said savings account, not an IRA or 401(k). I would not take money out of an IRA or 401(k) for a house downpayment because you’ll be hit with crazy fees.
Make things even easier by automating your savings. You can set up automatic transfers into your savings account with most banks and apps. For example, every payday you can make a transfer of $500 to go into your home downpayment savings fund.
Invest in a 401(k) and/or Roth IRA
If you’re not yet investing for retirement, the best time to start is now. I learned how to invest from a course created by the popular Instagrammer @personalfinanceclub. I know what you’re thinking, you learned how to invest from someone on Instagram?! Hear me out! This person retired at only 36 years old and has the knowledge you need to invest wisely.
Build Wealth by Investing in Index Funds course teaches you the fundamentals of investing.
You learn how to:
- Open an investment account
- How much to invest
- How to choose an index fund
The course also teaches you extra things, like:
- How to withdraw your money in retirement
- How to invest for children
- Taxes on investments and how it works
This course is so cool because the creator (Jeremy) actually takes you INTO his actual investment dashboard! You get an actual walk-through of buying stocks, index funds, how to take out money in retirement, etc. Even if you don’t take the course, make sure to follow him on Instagram because he has incredible free content.
Some of my favorite books on investing include:
Save for a vacation
Financial goals are fun and all, but you may want to make room for fun. Whether it be saving for a vacation or something else you enjoy spending money on, you should do it.
We have different saving goals that include things we really enjoy that cost a lot of money. For example, we’re saving money for bikes and cruises.
It doesn’t matter what fun thing you’re saving for, but it does matter how you save for it. Whatever you do, I recommend putting your savings into a high yield savings account, like I mentioned earlier. Right now, online banks like Ally Bank (what I use) is offering 2.25% on their savings account. That’s huge compared to what savings rates are at regular banks (like your local bank), some being .01%.
Not only that, Ally Bank has a really cool feature for the savings account. They have a feature called buckets which are essential sinking funds where you can save money toward different things. So let’s say you have $10,000 saved in your savings account, you can store that money into different buckets. You may have $5,000 in a bucket called wedding and $5,000 in a bucket called emergency fund. It’s such a cool feature and it’s totally free.
- Open a savings account
- Start an emergency fund
- Pay off credit card debt
- Save for a home down payment
- Invest in a 401(k) and/or Roth IRA
- Save for a vacation
Paying off student loans is a huge step in your financial life and I know how incredible it feels. Now you can take further action to get closer to your financial goals.
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