my two cents

‘I’m Terrified of Messing Up Now That I’m Out of Debt’

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Get That Money is an exploration of the many ways we think about our finances — what we earn, what we have, and what we want. In My Two Cents, advice columnist Charlotte Cowles answers readers’ questions about personal finance. Email your money conundrums to

Dear Charlotte,

I’ve spent the past couple of years working my way through my credit card debt. It was a little over $10,000 when I started, and by the end of this summer, I should finally be debt-free (aside from my remaining $4,000 in student loans). So … what’s next?

I’ve spent so much time the past few years feeling broke, worrying about maxing out my credit cards, and then operating on a tight budget to pay them off that I’m really not sure what to do with myself when the process is finally done. My credit score is fine — actually, I googled it this morning, and it’s technically “excellent” — and I recently got a raise (between my salary and freelance work, my income is now in the high five figures). How do people in my circumstances deal with having money that doesn’t go exclusively toward debt?

Don’t worry — I don’t intend to go on any lavish spending sprees. After all, that’s how I got into this debt in the first place. But I’m nervous about making a wrong move. Should I put a certain amount toward savings each month? Should I finally start putting money into the stagnant 401(k) that I haven’t touched since I started paying off my debt? Should I invest? I messed up so badly with my credit card and I really want to get on the right track.

Congratulations! I could go on and on about how great it will feel when you pay that final credit card bill, but you won’t need me to tell you. (Really, though: It’s like kicking off uncomfortable shoes after a long night. Feeling your ears pop when you yawn. Stretching out in a big bed.) Go ahead and luxuriate in that sense of accomplishment — not only because it’s gratifying, but also because it’ll help you stay on track moving forward.

You said you won’t go on any spending sprees, and I believe that you don’t intend to. But I also believe that you are a human who (presumably) leaves your home, uses the internet, and sees cool things you want to do and buy. Resisting those temptations for the past few years, in the name of paying off your debt, is a serious mental triumph — hold onto that, and keep it up. Instead of seeing this as an achievement that you can be proud of and done with, envision it as a hard-won muscle that you’ve toned and want to maintain.

Psychologists have a name for this muscle: “financial self-efficacy,” defined as “a sense of self-assuredness, or ‘self-belief’, in [one’s] own capabilities.” They’ve also established a wide body of research showing that it’s “critical” for good financial habits, like staying out of debt and saving for the future (I’ve written about this before). Some people have this trait by nature, usually because of how they were raised. But others have to learn it by proving to themselves that they can set goals that are slightly uncomfortable, learn what they need to know to reach them, and then put in the legwork — like you did.

In the long run, cultivating self-efficacy will save you a lot more than a $10,000 credit card bill. So that’s what’s next: Continuing what you’ve started. Think of this phase as emerging from financial triage and into a more stable condition where you’ll keep building up strength. The muscle is already there. You’re just giving it something new to lift. And that thing, for now, is your savings.

You’ve probably heard of the 50/30/20 budget, also known as the golden rule of personal finance: Fifty percent of your income should go to “needs” (consistent expenses like rent, groceries, health care, utilities, etc.), thirty percent should go to “wants” (dumplings, wine, Netflix, Ubers, fancy workout classes), and the remaining 20 percent should to savings and/or debt. (If you want to figure out those amounts based on your own paychecks, try this calculator.) While these proportions almost never shake out perfectly, they provide a nice scaffolding as you construct your post-consumer-debt life.

Now, some advice that you may not want to hear: Since you haven’t saved much over the past few years (for understandable reasons), you have some catching up to do. On the upside, you’re already used to living on less than you make. So, here’s your plan: After you kill off your credit-card bills, keep living as if you were still paying them, only siphon that same amount of money toward your 401(k) and a savings account instead. To go back to the 50/30/20 budget, it may mean that more than 20 percent of your income will keep going into the debt-and-savings category for a while (again, no spending sprees). But it shouldn’t be too painful because you just got that raise (congrats on that too, by the way), and you’ll get the satisfaction of watching this money grow instead of feeding it into a credit-card debt vacuum.

Christine Benz, the director of personal finance at Morningstar, once told me to think about savings as “financial multitasking”: “We’re all juggling multiple financial goals throughout our lives, and the key is to get comfy with that,” she said. “Early on, maybe it’s a combination of stoking your emergency fund and paying off student loan debt and contributing to a 401(k). As you move across an investing life cycle, maybe you’ll shift toward saving more for your kids’ college and your own retirement.”

Math-wise, here’s a rough example of what your multitasking could look like: If about 8 percent of your income is going toward your student loans every month, then put 12 percent towards your 401(k) and a minimum of 5 percent toward a cash savings account that you don’t touch (this will become your emergency fund). Automate these transfers so that you don’t even see the money and aren’t tempted to spend it.

The goal for your emergency fund is to sock away three to six months’ worth of living expenses. Don’t dip into it unless some unforeseen disaster strikes (a health emergency, bedbugs, whatever) and you need something to fall back on. Consider it your insurance policy against going into credit card debt again.

As for your 401(k): As a lifelong rule, most financial experts recommend putting about 10 percent of your income straight into a retirement account until you actually retire. Since you haven’t touched yours in a while, overshoot that number if you can. You mentioned investing — that’s what your 401(k) is for. Once you’ve built yours up, you can look into other types of investments, but for now, focus on the long-term, to give that money time to grow.

Yes, I know your eyes just glazed over — retirement funds do that. But the cruel truth about compound interest is that the best time to invest for retirement is when you’re young and dumb and can’t even fathom the idea of being in your 60s. Here’s where self-efficacy comes back into play: You just have to do it. Put on your most comfortable pants, dig out the 401(k) information that’s lying in the depths of your work email, figure out the password to your account, and set it up. (And yes, there is some nerdy immediate gratification, in that you’ll save money in taxes.)

The cumulative effect of watching your savings swell from month to month will feel almost as fantastic as abolishing your credit-card debt, if not more so. But I’m not insane — it won’t be as fun as spending a weekend with your friends someplace warm or buying soft new sheets or enjoying other wonderful things that money can buy. You have to live your life, too. Which bring us to your “wants,” also known as whatever the hell you feel like doing with the leftover 25-ish percent of your income after everything else is squared away. Here, you get to go nuts! Within reason. Personally, I set a weekly limit of whatever-I-feel-like money and make sure I don’t go over it, even if I do get down to the wire sometimes. I also suggest setting up a separate savings account (or try a savings app like Digit or Qapital) that builds up a cushion for impromptu treats, like a surprisingly large dinner bill or a worth-it impulse buy, now that they’re not completely out of the realm of affordability.

Finally, be patient. This next phase will take a while — years, probably — and be followed by yet more financial goals. But they won’t make you feel broke and stressed like paying off your debt did, because these savings are yours. The toughest part is already behind you.

‘I’m Terrified of Messing Up Now That I’m Out of Debt’