Our lives can feel like one surprise after another. How do you plan for the unexpected, while also saving for the future, your family, or even retirement? When you add student loans into the mix, it is easy to become overwhelmed. It may seem like you have two choices: pay off your student loans or save money. But you don't have to choose between the two. It is possible to be financially responsible with your student loan payments and save money for other things, like a house, retirement, an emergency fund or a wedding.
Start with a Budget
A budget is essential to tackling multiple financial tasks at once, and although the idea of a budget may feel restrictive, it can actually provide you with more financial freedom in the long run. Use our online monthly budget calculator to get a start on this process.
While a budget allows you to look at your finances on a month-to-month basis, you also want to take time to look at the big picture. Beyond a monthly budget, make a list of all your debt and include details such as how much money you owe for each debt item, the interest rates and monthly payment amounts to help you plan accordingly for the long term.
Manage Your Student Loan Payments
It's important to pay your full minimum monthly student loan payment by the due date each month to ensure that you'll pay off your student loans on time while benefitting your overall credit. Consider signing up to have your payments automatically deducted from your checking account if you have trouble remembering to make them on time. Some lenders offer interest rate discounts for automatic payments, which can help you pay less interest over time.
If you're struggling to make your required payments after subtracting your basic living expenses from your salary, look for ways to earn extra money or reduce your living expenses. If that's not enough, reach out to your loan servicer to discuss your options.
If you have federal loans, you may be able to reduce your payment to an amount based on your income. You may be able to temporary postpone payments, as well. Understand, though, that interest will continue to accrue on your loans and that most alternatives to making standard payments can significantly increase the amount you owe on your student loans.
If you're repaying student loans with higher interest rates, refinancing those loans to one with a lower interest rate may help you pay less over the life of your loan. In addition, if you choose a repayment length that is equal to or less than your current remaining repayment term, you can multiply the impact of refinancing on how much you repay. Learn more about refinancing with our Beginner's Guide to Refinancing Your Student Loans.
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Begin Your Savings Plan
Once you're comfortable with your budget and paying your bills on time each month, including your student loan payments, you can begin to focus on saving. Keep these tips in mind.
- Most experts recommend that you first build up an emergency savings fund that would cover up to three to six months of your expenses.
- Putting your savings into separate accounts for specific goals can help you stay on track.
- Find the best place for your savings by shopping around for the best interest rate.
- Make savings automatic. Check with your financial institution or employer to see what kind of automatic transfers or splitting of paycheck options they offer. When your money is placed into savings without an action on your part, it's likely you won't see it as something to spend.
Note that instead of saving, you can put extra money toward your student loan payments to pay down that debt faster.
Maximize Your Income
If you find that you're struggling to save or do all you want with your finances, earning more money or finding ways to reduce your expenses becomes more important.
Ways to Earn Extra Money
Whether you're trying to build up savings or make it easier to afford your expenses, these tips can help you earn extra money.
- Sell clothes, DVDs or video games you no longer use. Host a garage sale, sell at a consignment shop, or post items online through different marketplaces.
- Get a part-time or seasonal job. Retail stores, coffee shops and grocery stores often look for part-time help especially between October and January.
- Drive for a ride-sharing service or take advantage of other freelancing options. These options will allow you to earn extra money on your own schedule.
Tips for Saving More
If you feel like you've maximized your earning potential and still want to find ways to save extra money, here are some other ways to cut your monthly expenses:
- Download coupon or money-saving apps. Many grocery stores as well as retail stores offer coupons or loyalty discounts you can download through an app or website. There are also third-party apps that are product-based that may help you save.
- Use the 30-day rule. This rule works well for purchases that fall into a "want" category (shoes or clothes, electronics or video games, manicures, etc.). When you see something you want, write down the name of item, the date and the price. Then, place the note somewhere obvious and don't buy the item for 30 days. If, afterward, you still want the item and can afford it, then considering making the purchase.
- Drop unused subscriptions. Have you added up how much streaming TV or music subscriptions costs in total? What about gym memberships or subscription box services that are mailed to you monthly? If you're not using those services all the time, could you cut back on what you use or receive to save?
Save for Major Life Events
Mastering a budget, paying your bills and building your savings are the first steps to successfully managing your finances. Then there are the big purchases and expenses that test your financial plan's flexibility. Saving for these types of expenses should be separate from an emergency savings fund and comes after your living expenses and regular bills, like student loan payments, have been covered.
Buying a Home
If your budget is working for you that means you're able to pay your bills on time and without incurring high credit card debt. This will help you not only find ways to start saving for a home, but also makes you a good credit risk for the lender who loans you money for your home.
Mortgage lenders generally look at your credit history and score. If your credit history shows a pattern of on-time payments, you have reasonable expenses and debt in comparison to your income, and you've saved up a down payment amount, you'll be an ideal candidate for purchasing a home.
Saving for Retirement
Like creating an emergency savings fund, building a retirement fund can never start too early.
If your employer offers a retirement program, it's a good idea to start contributing money to that program as soon as you possibly can. It's even more important if your employer offers a percentage match, which is essentially free money to add to your retirement fund. Funding for employee-sponsored retirement plans is typically deducted from your paycheck before taxes, so it has an immediate benefit of reducing the amount of tax you pay.
If your employer does not offer a retirement plan, you may want to talk to a financial planner about an individual retirement account (IRA). Representatives at your bank or credit union may be able help you with this or, at the least, recommend a financial planner to you.
Keep in mind that you can always increase the amount you put toward retirement as your income increases or your financial situation allows.
Planning a Wedding
If you're engaged and planning a wedding or honeymoon, the choices ahead of you may seem endless. Before thinking about venues and how many attendants to have, consider the financial impacts. How will you pay for these events? Determine if your family will help with expenses or if you and your future spouse will pay for all the costs. From there, you can figure out your budget, how much you can save while still paying your bills each month, and then determine what venues, décor and food fit within the budget.
Purchasing a Car
Unless you live in a large city with great public transportation or a walkable area, you'll likely need a car. And car owners, at some point, usually need to replace one with another. Whether your plan is to save enough money to buy a car with cash or finance a vehicle with a loan, take into account how those expenses will impact your budget and remember that newer cars usually mean higher insurance and registration costs too. But, like making student loan payments on time and in full, paying your vehicle's bills on time each month will help keep your credit headed in a positive direction.
Saving for a Vacation
Everyone needs breaks from work occasionally to restore balance in their lives. A vacation, though, shouldn't break your bank. Determine how much savings from your monthly budget you can set aside for a vacation in advance and then plan for what you can afford. While a tropical paradise vacation during the winter may sound amazing, will you be able to save enough while still paying all your bills? A closer-to-home getaway can be just as fun without the higher costs.
Keep It Manageable
Navigating student loan repayment and other expenses does not look the same for everyone. Maybe sticking to a strict budget isn't for you but you could see yourself trying the 30-day rule or selling a few items for extra income. You may feel like your current student loan payments suit you well or you may think that refinancing them is a good option for you. Whatever you decide, choosing to be financially responsible is always a good place to start.
Use Our Student Loan Refinance Calculator to Compare Payment Amounts