Life After Debt- What To Do Next
By: Jamie Murray
Tags: Debt, Money, Investing, Personal Finance, Finance

Behavioural Change

“Human behaviour flows from three main sources, desire, emotion and knowledge”. — Plato

My wife and I spent the best part of eighteen months paying off our consumer debt. We arrived in our thirties with the realisation that our past financial decisions meant our future financial goals were unlikely. That is a scary feeling.

So we knuckled down, sold anything we didn’t need, budgeted like crazy and changed both our cars for cheaper ones. We cut back on luxuries, switched utility suppliers and did all the good things you hear people doing in any debt reduction story.

The best part of two years later we had gotten rid of our consumer debt, and the only debt associated with our bank account was our mortgage — which we reduced the term on.

The psychological high of feeling like you’ve conquered your debt and having approached your finances in a responsible manner is tremendous, it’s a real win, but where do you go from there?

Firstly — you need to remember what got you to where you are.

Desire + Emotion + Knowledge = Behaviour

For us, the thing that kept us on track throughout our journey to rid ourselves of debt was exactly as my favourite Athenian said:

We changed our behaviour because we desired a better future, we were emotionally tired, and we had knowledge that how we had been living was unsustainable.

The goal isn’t wealth. Wealth is the byproduct. The goal is behavioural change over the long term.

Without this, any progress you experience will be nothing more than a fleeting glimpse into a life that could have been. That’s easy to say though right? I mean, by the time we’d paid down our last debt we were tired, we just wanted to start living life. The regular highs of paying off debts were replaced by the strange emptiness that accompanies your next big financial hurdle is a long way down the road.

Ultimately, we started to slip.

“Let’s take our foot off the gas a bit, start enjoying life — we’ve earned it”. This is a natural response, it’s the response we had, and it’s the response that got us into trouble.

Life After Debt

When you’re paying off debt, you miss all the things you used to spend money on, you miss all the things that ultimately got you in debt. So when the debt is gone it’s very easy to get excited about all the possible ways you can spend your money.

It’s natural to want to enjoy life, it’s natural to want to not work so hard on the money game, to not feel so broke all the time and have that constant sense of lack in your life. Personally, I’d encourage a period of doing so. Go out for dinner, travel to see family, get some new clothes — just be careful.

We followed Rave Ramsey’s baby steps to get ourselves out of debt, and whilst Dave is known for his no nonsense approach to spending, even he encourages you to enjoy life after paying off your debt. Here’s the rub though…

Have a plan and don’t get lost in your new found exuberance!

I say this not to rain on your parade, I say this because we lost our way a little bit after paying off our debt. Not drastically, but we lost sight of the plan. I started buying regular coffees again, we travelled to see family without budgeting for it, and we would find ourselves eating out for lunch unexpectedly.

One day, I was on my way to work when I got a message from my bank. “Hmmm…unexpected” I thought, as I reckoned the bank balance was pretty healthy. The message read:

“You’ve Direct Debits planned that look like they may take you into your overdraft”

Not only was I taken aback, I was annoyed, embarrassed and most of all disappointed. Somehow we’d taken our foot off the gas and forgotten to pay attention to the pennies. It was time to get back on track and make a plan.

The Importance Of a Plan

It goes without saying you need a plan. We had a plan, we had just forgotten to stick to it somehow. Staying the course is the single biggest factor towards long term wealth creation. Unless you’re out there building businesses, staying on plan is the biggest thing that’s going to help the everyday person get ahead with money.

There are thousands of financial plans our there that tout the best way to build wealth, and it’s important you find one that works for you. Since going off piste we are back on track, and have managed to find that all important balance of enjoying life, and fueling our financial future. Here’s what I think works, but remember — you need to do what is right for you. I’m not an investment or financial advisor and this isn’t professional financial advice, but I genuinely hope it’s helpful!

So how do we strike that balance, and what should you do after you’ve paid off all your debt?

Do Take a Break — A Defined One

I still think taking some time to enjoy your achievements is important. After all, if we can’t enjoy them what’s the point? Do it carefully though, and with a plan. If you want a holiday, save for the holiday, don’t go crazy and make sure everything is budgeted for. Alternatively, If you like simple pleasures maybe just go out for dinner, or get that new coat you had your eye on.

Personally — If I was doing it again I’d probably just give myself free reign to buy coffee and books for two weeks. Whatever works for you is fine, just make sure it’s contained and isn’t going to put you in a position where you’re reintroducing old habits — behaviour change is what we are trying to maintain remember.

Revise The Long Term Plan

Hopefully, when you decided to get out of debt you made a plan. This plan will need revisiting to focus on the new goal — long term wealth.

So what should that plan contain? Well, it needs to be tailored for what you want out of life? If you don’t have children, you probably aren’t concerned with paying towards their education. If you already have a healthy rainy day fund, that may not be your primary concern.

The important thing is that you allocate resources on an automatic basis so that your money is working towards your future, while you live your present. You need to slice off a bit off your pay check before any bills and pay yourself.

Your plan should contain the following:

0. Keep budgeting, I can’t overstress this. Having an eye on the ball isn’t just something you do when you have debt. Knowing where everything is going is crucial to long term success.