We’re debt free- What next?

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Last Updated on March 14, 2022 by Melissa S.

If you’re currently at the end or nearing the end or your debt free journey then first of all, congratulations! Becoming debt free is an amazing feeling. However, you may be concerned at knowing what to do next to ensure you don’t slip back into old habits.

debt free

The Dave Ramsey Baby Steps

You may be familiar with Dave Ramsey’s Baby Steps which is a 7 steps program to paying off debt and building wealth. Step One is to build a starter emergency fund of £1000 or $1000 for any unexpected emergencies. It is crucial to do this before throwing the rest of your money at your debt in case of emergencies such as a broken down car or washing machine. (Note to self: Taylor Swift tickets or a flash sale at your favourite boutique do not constitute an emergency).

Baby Step 2 is then to use the Debt Snowball method to pay off as much money as possible to the debt with the highest interest, before moving on to the next debt. The idea being that as the debts are paid off, the amount of money you can throw at each one will snowball until the last one is paid off in a fraction of the original time.

As a couple, we completed this step in April 2019, and although I don’t follow all of Dave’s Baby Steps to a T, I was really pleased at how far we managed to come in a short space of time. So once we had built up some healthy habits and examined our money mindsets, what did we intend to do next?

What is Baby Step 3?

Dave’s advice in Baby Steps 3 is to start building up 3-6 months of expenses as an emergency fund on top of the starter £1000 emergency fund from Baby Step 1. We are going to do this but at a slower rate, splitting our money between the Baby Step 3 emergency fund, every day sinking funds and some much needed home & garden repairs.

Photo by Alexander Mils on Pexels.com


Once you become debt free, investing is an area you may consider looking into for long term growth. It is always important to get advice from an independent financial advisor who will be able to taylor an investment plan to suit your individual needs.

I have opened a stocks and shares ISA via Plum which lets me invest in a broad range of companies through its funds.

Sinking Funds

On top of an emergency fund and long term savings, you may wish to look at setting up a number of sinking funds for different purposes. These could include:

  • Christmas
  • Birthdays
  • Holidays / Vacations
  • Car repairs
  • Treats just for you!

Once you work out how much you need for each expense, you could set up direct debits to different savings pots for each fund.

PRO TIP: If you’d like a detailed, step by step plan of how to do this, you can get my complete free eBook Workout Your Wallet worth £27 right here!

Where are you on your debt free journey?

Are you nearing the end or just getting started? What tips would you give to others about living a debt free lifestyle? Be sure to leave a comment and share your thoughts.

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What is a Sinking Fund and Why You Need One

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debt free

Hi! I'm Melissa

I help busy mums like me become financially fitter without resorting to extreme “crash diet” measures.

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