What happens after you have reduced all your credit card debt? Well, my old friend Mary just did that and so I asked her what were her financial plans going forward? I congratulated her as she had taken a few years to totally eliminate her debt. She shared her plans with me.

1. Work on paying off her mortgage debt faster

To Mary, debt is debt and though one can argue that your home is an ‘asset’, Mary just simply looks forward to the day when she is totally debt free. Your mortgage interest may be ‘tax deductible’, but it is still debt. So aside from her monthly mortgage payment, she is now paying additional principal so she can reduce the term of her mortgage. She now anticipates paying off her mortgage in 15 years.

I have not exactly gone through the calulations with her regarding the benefits of having mortgage interest as a tax deductible item. But to Mary, that is irrelevant.

2. Have 12 months of emergency funds

Yes, while Mary is paying off her mortgage faster, she wants to increase her emergency fund to be able to support her for 12 months. 12 months of emergency funds is more than the 3 months or 6 months that is typically being recommended. But Mary’s husband had lost his job before and took close to 10 months before finding another job. In fact, this was one of the reasons that put off her debt reduction schedule.

3. Have adequate disability insurance

While Mary’s husband has disability with his present employer, Mary does not have any with hers. She is already shopping for a disability policy and will be buying one soon. She does not want to take any risk. This is a very smart move in my opinion. In a previous post, I talked about a church mate of mine who had a stroke in between employment and had no disability insurance. You definitely want to make sure you have adequate disability insurance coverage.

4. Start the journey to retirement planning and savings

Yes, since the credit card debt is now eliminated, she will start serious contributions to her retirement plan. She also plans to hire a financial advisor and begin saving seriously. She is in her mid thirties and that is a very good thing – start early and stick to a plan.

5. Start a regular program to donate to charity

Donating to charity is very important to Mary. However, she does not think she can donate as much as she wants to right away. Instead, she will start small and hopefully increase her charity donations over time as her financial situations get better.

Wel, I am very happy for Mary and I think these are very logical steps she is taking. I definitely agree with her on the part of paying off her mortgage early. I think too many of us do not think of our mortgage the same as our credit card debt. That is because we are paying off for an asset that historically has appreciated as much as the inflation rate. But I’m sure having no monthly mortgage payment will be a huge relief to anyone. I agree with her on the emergency fund as well and I think 12 months of emergency money is the right amount. Some of you may disagree with me and think that is too much and that perhaps three months emergency money is enough. Let me know what yoy think by commenting below.

Mary also made me realize that I have to check my disability insurance coverage with my company. Charity – well, it is always something we have all said we would do but never got about to do it. We’ll see how this pans out in my situation.

This entry was posted on Sunday, June 10th, 2007 at 21:58 and is filed under News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.