Your final step is setting up a budget for yourself and your family. As we already discussed, you should keep making the monthly payments you had been putting into your settlement account but now make them into an investment fund. We recommend choosing mutual funds with low fees (Vanguard is a company we recommend). You can scale back the payments a bit if needed but they should be at least 10% of your gross monthly income. This is the most important part of the budgeting process and as long as you stick to this, you should be able to build up a nice retirement account.
The second thing you will need to do is make sure all your installment payments, which include things like car payments, student loans and credit card bills, are less than 20% of your gross monthly income. This will keep you on track in terms of debt amount so you don’t get overwhelmed. You will use the remaining amount of your paycheck for living expenses and paying taxes.
Another good tip is to set up an emergency fund. The amount of money you keep in here varies from person to person but 5-10k is usually a good range. This fund will cover unexpected expenses like major car repairs or hospital stays that aren’t covered by insurance.
The last budget tip is to keep a spending journal for the first 60-90 days after you become debt free. Keeping this journal can be time consuming but the information you get from it will be invaluable. You can also do this in Quicken or a similar software if you have it available. At the end of the 60-90 days, sit down and look at your budget. See how much you spent on food, clothes, coffee, etc and you will undoubtedly find places and categories where you can scale back your spending.
