Once you’ve graduated college, adult life comes at you fast. Not only do those student loan bills start rolling in, but then you’re confronted with the harsh reality of how quickly your starting income gets eaten up by taxes, rent and basic living expenses. And don’t forget, the world wants you to start thinking about retiring, too.
With all these competing money goals, you might not know where to start, which can lead to paralysis and heading out for happy hour instead of making a decision.
Don’t stress! It’s possible to save, both for retirement and those adult-level emergencies, all while paying down that balance on your student loans.
Here are a few people in those same shoes to tell you how they did it:
Check your entitlement and get humble, says Bobby Hoyt, who started out mad at his parents that they didn’t pay for college. “My 18-year-old self was so mad,” he said. “But it’s such an unfair thing to expect that from your parents. I just started realizing that I could be mad about my student loan debt, but that doesn’t make it go away.” Instead he and his wife rented a room from her parents for $500 a month. Bobby let his friends pass him by with fancy clothes and cars. Every time he got his paycheck, about $1,730 with a retirement contribution already deducted, he made a $1,300 student loan payment, leaving almost no room for extra spending. “Once that money was gone, I couldn’t spend it,” he said. “I forced myself to live that way.” After paying off his loans, he “blogger retired” from his band director job.
Follow a pre-made plan, says Matt Spillar, who keeps a blog about his financial plans. He and his wife used Dave Ramsey’s Financial Peace University as a basis for their plan, though they tweaked the framework to fit their needs. “Ramsey says to wait to save for retirement until all your debt is paid off, but I didn’t want to miss out on multiple years of growth for our retirement accounts,” said Matt.
Starting with about $40,000 in student loan debt combined, as Dave suggested, they paid only minimum payments for a year while building up an emergency fund. Though, Matt wanted a bigger fund than Ramsey suggests because he lives in the pricey Bay Area. He and his wife took advantage of their companies’ 401k programs immediately, taking advantage of an employer match, which is free money. By starting with advice, cutting expenses and tracking spending, Matt and his wife have cut their student loan debt down to $15,000 and their retirement funds are growing.
Automate your goals, says Jenna Amatulli, who has an automatic transaction going from her checking to savings every week, even through she’s paying $350 a month in private student loans while going to grad school and trying to make it as an editor in New York City. “A first it was just $25 to $50 a week,” she says. “The automatic transfers really made the difference.” Now she’s saving about $500 a month. The best way to make sure she can afford to save that money is also by cutting spending. “I avoid shopping like the plague,” she said. She also brings her lunch to work, even though she’s tempted when her work friends are all headed out to ramen together. If life happens and she doesn’t have enough to save, she just cancels the weekly transfer and looks toward next week to start again. She’s been able to pay her student loan down from $18,000 to $6,000, and she has about three months salary in savings. “I saw the effects of the recession firsthand, so I feel good about having that savings,” she said.
For anyone with debt, it’s important to both pay down your balance and plan for the future. One affects the other, as for each dollar you have in student loan debt has been shown to reduce your retirement savings by 35 cents, according to Morningstar. In other words, if you’ve got $100,000 in student debt, that’s a $35,000 setback towards your retirement.
So just accept where you are, find a plan, and automate your action to meet your long-term goals.
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