The No Debt Plan: Step Five: Revisit Your Goals and Budget

by Kevin on July 22, 2008

This is the Eighth post in a series: The No Debt Plan.

If you’ve made it this far, you are too be congratulated. You’ve setup a budget, achieved free cash flow, built up some sort of emergency fund, and as of Step Four are now free of your consumer debt. That’s a huge accomplishment and you should be proud!

The simple fact of hitting those first four targets — a budget, more money coming in than going out, an emergency fund, and debt freedom — puts you in the top percentile of the entire world in terms of finance. Regardless of how much money you earn it is a big step forward from where you started.

At this point in the game, you should know where money is coming in to your budget, and where it is flowing out. You should have an idea of how much you spend on average for various items each month: groceries, gasoline, insurance, etc. This knowledge can help you better plan for your future.

So the No Debt Plan ends here, right?

Not quite! You’ve made it through half of the journey. You started out in the hole. In debt up to your ears. You had no plan, and no idea how much money you spent each month. You’ve made big strides yet there are more to come.

Essentially, you’re halfway through the marathon. You don’t want to quit here, do you?

For the visualizers out there, this is you:
No Debt Plan Step Five

See? You’re standing on top of the mountain. You’ve climbed your Financial Everest. Your friends and family have cheered you to this point.

But just like climbing any mountain, you’re only half done. You’ve got to continue down the other side to complete your summit. Stopping any time before you truly finish is, well, disaster.

Why Continue the No Debt Plan?

You could consistently apply the first seven lessons of this series for the rest of your life and end up okay. I know we can do better. We haven’t tackled real estate, investing for retirement, or even tweaking your current goals.

Stopping now would also not leave you fully prepared for the future. Setbacks will come. You will use that emergency fund some day. I don’t want you to sit in a holding pattern with your finances. Continue to strive forward.

You’re ahead. I’m going to show you how to stay ahead.

Analyze and Adjust Your Goals

Back in Pre-Step Three, I had you define some financial goals. Look back at those goals. You should have them posted somewhere as a reminder of your progress.

If you started my No Debt Plan while in debt, your goals most likely revolved around getting out of debt and improving your life. “Kill off my credit card debt by the end of June 2008” and “pay off that three year old hospital bill by April 15, 2008” would have been great goals.

But you’ve begun to change your life. If you are debt free, those goals are gone. Accomplished. Finished.

You need new goals. As with the first exercise, I can’t tell you what they should be. What do you envision your life being like one, three, or five years from now? What financial tasks do you want to accomplish in that time period? Those go here. Some quick examples:

  • Pre-pay all insurance on a six month basis.
  • Invest 5% of current salary into company 401k.
  • Save up $35,000 for down payment on a home.

These new goals are for the downhill slope of your life. The debt is in the past so the debt goals are in the past. You’re headed towards creating wealth and these goals should reflect that.

Your Budget Should Change with Your Goals

A quick sample budget before and after becoming debt free:

  • Before
    • Income: $3,000
    • Living Expenses: $2,000
    • Saving: $100
    • Debt Payments: $900
  • After
    • Income: $3,000
    • Living Expenses: $2,000
    • Free Cash / Saving : $1,000

In the above situation, you suddenly have a boat load of cash to do something with. Spend it frivilously? No, no, no. Of course not. You need to adjust your budget to match your goals.

Let’s take the example a step further. You’ve got $1,000 to do something with at the end of every month. Your previous goals had that money going towards debt. You are now debt free, so that money needs to go to something new.

If you look at your New Goal List, saving up $35,000 for a home down payment might top your priorities. Well, now you know where that $1,000 is going for the next 35 months. Or maybe you split up the money into several goals. That’s fine as well — just remember the whole point is to tell your money where to go. You’re making sure it goes into a place you want it to go, toward a goal you find important.

New Territory for the No Debt Plan

In upcoming posts for the No Debt Plan, we’re going to step away from knocking out debt. We’re in new territory: wealth creation and smart money decisions. If you ever have any debt questions, please don’t hesitate to ask via the contact page.

But I do want to help you slide down the other side of the mountain rather than leaving you stranded at the top. “I’ve paid off all my debt, woo hoo! … Wait… now what?”

The now what comes next time. Stay tuned.

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July 28, 2008 at 4:43 am
Carnival of Personal Finance #163 – “Quotable Quotes” | YNAB
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Gregory Pennington Blog July 23, 2008 at 11:28 am

This is the 1st in this series of posts that I have read & though I am going to go back and read through them all, I just wanted to say I really enjoyed reading this post. Well written & good tips. I also love the image you have used – there’s a lot to be said for keeping it simple!

Kevin July 23, 2008 at 7:50 pm

Thanks for stopping by and thanks for the compliment. I did the image myself, if I can brag on myself … 😉

Sam August 14, 2008 at 9:05 am

This is one of the best series I’ve read. Maybe you can compile them in a .pdf file and use it as a “bonus” for subscribing to your rss via email?

Fix My Personal Finance

Kevin August 14, 2008 at 9:18 am

@Sam, once I complete it I plan to turn it into an eBook… definitely. Thanks for the kind words!

rich August 19, 2008 at 7:47 pm

Great post!

I find it hard to see all the nice gear at the mall & all the people buying the stuff without going into debt myself.

It’s sooo tempting….

ronald January 25, 2009 at 10:13 pm

Your thoughts in this post to becoming debt free is so simplified and understandable. It is a great post.

Thanks for sharing it.

Earnestine Cagney July 4, 2011 at 5:15 pm

Fairly good post. I simply stumbled upon your weblog and wanted to say that I have really enjoyed studying your blog posts.Any way Ill be subscribing to your feed and I hope you submit once more soon.

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