In my journey to financial independence, I found Step 3: Payoff All Debt (Except the House) was the hardest for me. With tens of thousands of dollars owed in student loans, it took me a long time and a lot of stress before I became debt free. But, once I finally completed that step, I was ready to stop throwing my money at loans, and to start throwing it at investments. This became and still is very exciting for me. With loans, I didn’t have many better financial options other than paying down the loans. Now that I had become debt free, I could do anything that I wanted with my money. I could save for a new car, I could invest in real estate, I could invest for the long term, I could increase my cost of living, or whatever I could think of. It gave me a whole new perspective where I no longer felt trapped financially.

But with this new freedom, came an endless amount of choices and indecision. So, I decided to create a list of the most viable options for me, research the pros and cons, and then decide on a plan forward. Below, is a list of the financial avenues I explored, and my explanations to help you decide your path forward. As I’ve mentioned before though, I wouldn’t start on many if any of these financial avenues until I completed the first six steps outlined below.

Increase Savings (Low Risk/Reward)

Once you’re finally debt-free, you’ll probably realize that the only money you have available, not in retirement accounts, is the emergency fund you created in step 1. While this fund is great for emergencies, and you should always maintain it, it’s probably not enough savings for your current goals. This is why I’d recommend increasing your cash savings. What I’ve found useful is to create sub-savings accounts. Sub-savings accounts are just a way to organize, or categorize your savings into smaller accounts. For example, I could open a savings account at Ally Bank. I could then create sub-savings accounts for my emergency fund, vacation fund, house down payment, car down payment, or whatever I deem necessary inside that Ally Bank savings account. This is the process I used to setup my sub-savings accounts:

  1. Create sub-savings accounts for any big purchases you plan on making within the next 5 years. (House Down Payment, Car Down Payment, Vacation, Wedding, etc.)
  2. Create a goal for the amount of money you’d like to save in each sub-savings account. (House Down Payment Goal = $25,000; Car Down Payment Goal = $6,000; Vacation Goal = $3,000; etc.)
  3. Setup automatic contributions from your checking account into your sub-savings accounts to meet your goals based on your deadlines.

If you’re interested in learning more about this process, I’d recommend reading Ramit Sethi’s article Sub-savings accounts: How to save for anything in 3 steps. This is a great method for increasing your cash savings with a purpose. And, if you read my post Step 1: Building a Proper Emergency Fund then you know I recommend doing all of this with a bank that offers a high-yield savings account (Ally is my favorite).

If you feel like you don’t need anymore cash savings, or you’ve already increased your cash savings enough for your liking, then I’d recommend one of the next avenues below.

Typical Return Rate of Savings Accounts: 2%

Pay off Mortgage (Medium Risk/Reward)

If you have a house, paying off your mortgage is another fairly safe avenue for investing your money. While the next two options below offer greater risk and reward, this option isn’t bad at all. Once you’ve paid off your mortgage, you will own your house in full and no longer have to worry about the monthly mortgage payments. Yes, you still have to pay various property taxes and fees, but getting rid of your mortgage is a huge relief. Many people say paying off their mortgage and owning their house in full is a true sign on financial independence. If you think this step is right for you, increase your monthly mortgage payments as much as you can to pay it off ASAP. I’ve never read about someone regretting paying off their mortgage so you’ll likely be pretty happy when you do.

If you don’t have a mortgage, have already paid it off, or want to take a riskier avenue, please checkout the next two options.

Typical Return Rate of Mortgage Payoff: 4%

Open a Brokerage Account (High Risk/Reward)

This is probably my favorite option. A brokerage account is an investment account without age, income, contribution or withdrawal restrictions. That means you can open a brokerage account anytime you want, no matter your income, and you can contribute as much as you want and withdraw at anytime. With this option, you’re investing money that’s already been taxed though. You’ll also be taxed on interest gained and gains upon selling. So, while this account offers a ton of freedom, you’re taxed at multiple levels. This is why it’s better to first max out all of your tax-advantaged accounts (401k, IRA, HSA) before considering a brokerage account.

What I recommend is opening a brokerage account wherever your IRA is at for simplicity purposes. If your IRA is through Vanguard, open a brokerage account with them too. Then, invest money that you don’t plan on using within the next 5 years. Put that money in an index fund that matches the S&P 500, like VOO, and let it ride. I don’t recommend stock picking, stock trading, timing the market, and many more of the “get rich quick” strategies that are proven to under-perform the market on average. Simply stick your money in the index fund and only sell once you need to withdraw it (hopefully after 5+ years).

Typical Return Rate of Brokerage Account Index Funds: 10%

Start a Business (Highest Risk/Reward)

The last option on my list is opening or investing in a business. Whether your passion is to open a healthy restaurant, start a new gym concept, or develop a unique product/service, you have a ton of options. And, while it’s relatively difficult to open and run a successful, multi-year business, there is a ton of upside. You basically get to choose your work hours, setup your work environment, declare an organizational culture, and pick whatever projects you want to work on. Your income and rate of return potential is virtually limitless too. But the downsides could include long work hours, risky investments, delayed return on investment, and possible bankruptcy.

Typical Return Rate of a Business: Varies greatly from bankruptcy to billionaire status

Final Thoughts

If you’ve completed the first 6 steps of financial independence and are on Step 7 then congratulations. In step seven, I’ve outlined how to further invest your money after maxing out your tax advantaged accounts and paying off all your debt.

I’ve used this strategy to increase my savings for future vacations and down payments. Since I don’t have a mortgage and am more risk tolerant, I opened a brokerage account and have invested thousands of dollars into it. I’ve also started my own business with this blog. I’ve attempted to spread out my investments for diversification and it’s really helped put me in a great place financially.

Feel free to use this guide to plan your future investments and setup your rich life.

If you liked this post, please subscribe to the weekly newsletter and follow the social media accounts for the latest content!

Hey, I am Brandon Zerbe

Welcome to myHealthSciences! My goal has always been to increase quality-of-life with healthy habits that are sustainable, efficient and effective. I do this by covering topics like Cognitive Health, Fitness, Nutrition, Sleep, Financial Independence and Minimalism. You can read more about me here.

Disclosure: I frequently review or recommend products and services that I own and use. If you buy these products or services using the links on this site, I receive a small referral commission. This doesn’t impact my review or recommendation.