Graduating, starting your career, and paying back student loans can feel like a big financial challenge on its own, but when you add 401(k) plans, IRAs, and employer matching to the equation, you may start to feel overwhelmed. You may be wondering how you will afford to pay for your needs today and plan for future needs in retirement, all while paying back student loans and learning how to live on your own.
It’s a lot, yes.
But there is a positive to the changes you’re experiencing in life, and with the proper financial plan in place, you’re sure to succeed financially. Remember, lifestyle changes will continue to happen throughout your lifetime, so the plan you set in place today will not be the one you use through retirement. Take it one step at a time, reevaluate when needed, and keep moving forward. Read below to learn how to manage your finances when you’re paying back student loans while simultaneously planning for the future.
Review Your Budget and Goals
The first step to creating any financial strategy is to review where you are today. Whether you’ve just started your career, or have been working for a few years since school, you need to understand your full financial snapshot.
Start by reviewing your monthly income and expenses. You’ll also want to understand how much debt you have and what the repayment timeline and interest rates are for each loan. Ask yourself the following:
- What is my biggest source of debt?
- Do I have any savings for unexpected emergencies and expenses?
- Are there ways I can make additional income through a side hustle?
- Where can I reduce spending?
- Will I get any bonuses, raises, or tips from my job this year?
Once you have a better understanding of where you are financially, you can sort your income and expenses into categories. Slavic401k recommends using the 50/30/20 rule to divide your income into three spending categories: essential, non-essential, and savings and debt payoff. This strategy will help you track and manage your finances and can be carried out via online and mobile apps, or budget sheets.
Review Options: Debt Consolidation and Loan Forgiveness Programs
Once you understand your debt totals, interest rates, and timelines, look into options for managing them. Financial solutions such as debt consolidation or loan forgiveness programs can make a big impact on the amount of interest or the total amount you have to pay.
If you have multiple sources of debt, including student loans, vehicle loans, or credit cards, it might be worthwhile to investigate consolidation options. These loans work by combining multiple debts into one personal loan to help you save interest over time.
For those learning how to manage finances, having fewer sources of debt may be beneficial as you navigate a new world of finances, and can save you hundreds or even thousands of dollars over time that can be used for other avenues, like retirement savings.
Before consolidating your debt, make sure you understand the new loan structure. Compare interest rates, penalty fees, timelines, and more to make sure it’s worth the effort and does lead to savings. If you’re unsure where to start, contact a financial advisor. Together, they can help you find the right solution for your budget and needs.
In some cases, you may be able to have your student loan debt forgiven, canceled, or discharged. The Federal Student Aid Office, an official department of the U.S. Department of Education, notes that qualifications and terms vary, but can apply to disabled workers or those working as a teacher, government employees, medical professionals, and more.
Furthermore, you can have your student loan discharged or canceled if you’ve experienced special circumstances, such as bankruptcy, death, forgery, etc.
If any of the above apply to you, learn more here.
Create a Plan (and stick to it)
Now that you have a good understanding of your finances, budget, and debt, it’s time to create a plan and put it into action. Using the 50/30/20 rule and budget apps like Mint and Spendee, you can list out your monthly income and expenses, financial goals, investments, and loans to keep track.
Whether you’ve consolidated your debt, or kept loans separated, make sure you calculate the monthly minimums into your spending budget. Missing payments can result in late fees or penalties that will negatively impact you financially. The same goes for your credit cards – make sure you’re paying more than your monthly minimums and not overspending.
Another item to include in your budget is retirement saving. If your employer offers a match program, make sure you’re enrolled. Matching programs allow employers to match a percentage of an employee’s contribution into their 401(k) as an incentive to participate. If you can, make sure you’re maximizing the matching amount to ensure you’re getting as much money as possible for retirement. Learn more about matching here.
If you don’t have a 401(k) or employer match options, consider opening an Individual Retirement Account – also known as an IRA. These accounts can be opened online and are easily managed by the participant. Both Traditional and Roth IRAs allow individuals to contribute up to $6,500 annually in 2023, which can make a big difference in your retirement preparedness. The Internal Revenue Service (IRS) changes the contribution maximums from year to year, so make sure you understand the changes, if there are any, at the start of every year.
To understand retirement goals and how much money you need to save, view Slavic401k’s calculator library, which includes calculators to help you with retirement planning, contribution forecasting, and more.
Saving for the future may seem daunting as you manage student loan debt and start life on your own, but with the proper understanding of your finances and strategy to help you reach your present and future goals, you will be able to succeed. Remember to ask for help when you need it and utilize resources like the Slavic401k blog, follow trusted financial professionals online, and meet with a financial advisor. Your adult life is beginning, and you can thrive.