Due to the shutdowns and stay at home measures put in place during COVID-19, saving money has been easier than ever before, because there really isn’t anywhere to spend it! If your situation is anything like mine, you may have taken advantage of the extra funds in your bank account to eliminate a major source of debt – your student loan debt.
Because of the current situation, my student loan debt was paid off in October of 2020, rather than early 2021.
This is great news! Finally, being out from under this debt is a wonderful feeling. But, if you’ve been in a situation similar to mine, you may not know what to do once this obstacle is removed. It’s tempting to want to spend this money that has been added back to your budget on fun things, like trips or other luxury items – but is this really the best use of these funds?
In this post, I will offer six things you can do to improve your financial life once your student loans are taken care of!
Start Building Up Your Emergency Savings
Student loan payments can be pretty high. Depending on your monthly payment, you may not have had the ability to set aside money in emergency savings for quite some time. Now that your debt is paid off, take advantage of this opportunity to set up an emergency fund!
As we have seen during the unprecedented time of COVID-19, it is entirely possible that you could one day find yourself in the position of not being able to work for a considerable amount of time. Having 3-6 months’ worth of living expenses set aside for exactly this reason is a great safety net. You will be much less stressed if you know that no matter what happens, your finances will remain in good shape and you won’t find yourself back in debt again.
Contribute More to Your Company 401(k)
While it is not required to pay into your 401(k) in your 20’s or 30’s, it certainly doesn’t hurt! We all know that we will want to retire at some point in our lives and saving to your retirement account early will help you to build up a solid nest egg for whenever you are ready to stop working. Although there is no immediate benefit to saving into a retirement account right after your loans are paid off, this is a smart move in the long run –your future self will definitely thank you for it!
Many large companies offer an employer match as a reward to employees who save for retirement. Typically, this is 50% of every dollar you contribute up to 6% of your pay. So, if you contribute that full 6%, you will get an automatic 3% raise with employer match contributions! While this may sound like a lot of money you aren’t getting right into your pocket to spend on fun outings with friends or updating your wardrobe, just remember, this money will help you to live the life you want in retirement.
Re-evaluate Your Financial Goals
If you are like me, eliminating your student loan debt has been your primary financial goal from the moment you graduated from college. Now that the day is finally here, you may find yourself wondering – what’s next? This might be an excellent time to sit down with a financial planner.
A financial planner is someone who can help guide you through any and all phases of life. They will discuss goals with you and help you determine the best way to meet them. For example, once your student loan debt is eliminated, you may want to make changes to your living situation, purchase a new car, or plan a big trip with friends. A financial planner can help you create a reasonable timeline to accomplish these things and give you concrete steps to take to ensure you will meet these goals.
Even before you see a financial planner, take some time on your own to contemplate where you see your life going now that this debt is gone. Make a list of things you want to do and rank them in order of importance to you. Now that your student loans are done, you are free to pursue some new – and more enjoyable – goals!
Up Your Charitable Planning
It can be hard to donate to worthy causes when the majority of each paycheck is being used to tackle your student loans. Once this debt is paid off, make a list of causes and/or organizations that are near and dear to your heart and consider donating to some or all of them. Depending on how much you donate, you may be able to receive a tax deduction – a great bonus!
Focus on Other Debt
While your student loans may have been your biggest debt, they probably aren’t your only debt. After your loans are paid off, take a look at the various places you may still owe money. Depending on what stage of life you are in you may have a mortgage, car loan, or credit card debt. Now that you aren’t making monthly contributions toward your student loan balance, you may be able to contribute more money to some or all of these.
This is another subject that can be tackled in a meeting with a financial planner. He or she can help you evaluate your debt and determine what should be paid down next.
Update Your Budget
The amount that you were contributing to paying off your loans is still being deposited into your bank account each month, but now it is no longer allocated to anything specific. This affords you the opportunity to contribute to other parts of your budget, such as a vacation fund or new car fund. You may even be able to afford that daily Starbucks run you’ve been looking forward to! Of course, you should first consider allocating these extra funds to areas of your budget that may be lacking.
Now that you are freed from the burden of your student loan debt, the possibilities are endless!
Being relieved of student loan debt is a great feeling! If you have managed to pay of these loans during this pandemic, your financial life is already looking up. Take advantage of some of the suggestions offered in this article to keep that upward trend going. Your future self will definitely thank you!