Debt free now what

Debt Free, Now What?

A few weeks ago, I officially became debt free. More than two years after graduating college,  I now have the freedom to decide what to do with my money.

But as the old saying goes, with great power comes great responsibility. Having more cash flow can be overwhelming at first, especially with little experience managing money.

As I’m writing this post, I am in that exact situation. Here is a list of things I put in my to-do list now that I am debt free. It’s a mix between the principles I’ve learned and my specific needs.

1) Build an emergency fund

Most experts recommend 3 to 6 months of expenses in savings. I prefer to look at it more like how much is needed in order to weather any type of storm. To come up with that number, here are some things I plan to include:

Health Insurance

Based on the plan I’m enrolled in, how much can I expect my out of pocket payments to be in the case of a major health scare? According to, the average cost of a 3-day hospital stay is around $30,000. To get a fair estimate of what I need to save for health expenses, I used that number as the potential price tag of a hospital stay. I then looked at my insurance deductible, co-pay and coinsurance amounts to determine how much of that $30,000 I would actually be responsible for.

Obviously, hospital stays and other future medical needs are impossible to predict and can increase quickly, so it’s a great idea to overstate these numbers.

Family Emergencies

Although I was tempted to ignore this possibility at first, I eventually came to the acceptance that something may happen to my parents or my sister who all live overseas. For example, my dad may get very sick and I may have to travel back and forth to help him.

We also need to consider our own unique family situation. My sister is going to college next year. My parents are going to try their best to cover her tuition and other expenses, but I just know it won’t be enough so I need to be prepared to help at all times until she graduates.

Loss of Income

Whether you have corporate job or are self-employed, it is imperative to plan for a loss of income. Lay-offs happen all the time. If you run a small business and the economy stinks, you may lose some clients.

Again, the specifics on how much should be set aside should depend on the individual. Job security is different in every field. In addition, some people are better than others at finding opportunities and creating side-income to help them through tough times.

There are dozens of income related setbacks that may come up unexpectedly. The goal is to have a realistic estimate of how much needs to be set aside when they happen.

2) Sinking Funds

Interested in buying a house or a car? Do you have a bunch of close family and friends who are clearly gonna get married soon? All of these things are common occurrences that we all have to deal with despite not being emergencies.

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One of my biggest pet peeves is having no idea whether I could afford something. If I only have $5000 in savings, should I say yes to that wedding invite? In order to avoid these uncomfortable dilemmas, I decided to start separate sinking funds for the expenses I have come to expect but that I don’t budget for on a daily basis.

I use an online bank for all my savings needs. It takes me less than a minute to add an account and I can even nickname it to make it easier to monitor multiple ones at the same time.

That way, I don’t feel bad when I do spend money on a luxury and more importantly I don’t touch my emergency fund every couple weeks.

3) Investing

When I was paying off debt, I was doing very little investing. My company offers a 401k match so I took advantage of it, but that was pretty much it.

I plan to change that as soon as I feel like I made enough progress on my emergency fund. For example, if I reach 50% of the amount I want to have in there, I may decide to start investing more and reduce my emergency fund contributions.


I will start by taking advantage of all applicable tax efficient vehicles. Some of the most widely used are 401s, IRAs, SEP IRAs, HSAs. There are also specialized plans to be aware of like 529 plans for those with kids.

Financial Independence

After maxing out all tax advantaged accounts that apply, I will open a taxable brokerage account where I will use the same exact low cost index fund strategy I use elsewhere. The ultimate goal is to automatically invest a huge chunk of my income in such a way that in few years, I can just do whatever I want.

That last piece is what I call my financial independence fund. Most people believe a 10 to 15% savings and investments rate is enough. If you want to have any chance of retiring before your sixties, that percentage is just not gonna cut it.

Most retirement advice is built around the assumption that we all would be satisfied with the regular 9 to 5 schedule for 50 years.  I plan to live a way more awesome life where I have a choice as to what I do for a living, how often I travel, how many hours I work per week etc… To reach that point, I’ll have to be aggressive in the amount I reserve for investments.

What up?! I go by Mr. Compounding (I know, great name). I grew up in Port-au-Prince, Haiti and moved to Boston after high school. My goal is to share my personal experiences and opinions, as well as encourage people to take control of their finances.

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