Competing financial goals can often spread your resources thin and prevent you from making progress on paying back your student loans.
Trying to do too much with too little can leave you feeling overwhelmed, stressed, and crushed by debt. If student loans are a major pain point in your finances, then it’s time to get serious about reworking your repayment plan.
“There are more costs to individuals than just the interest rate on their debts,” says Jeff Nordin, certified financial planner and founder of financial education firm Core Financial Concepts. “If your student loans are causing you stress and grief, then you need to target it.”
3 financial steps you need to prioritize
When setting financial goals, you need to first set up some savings to ensure your stability.
According to Nordin, a strong financial foundation has two key steps and elements: creating an emergency savings fund and having retirement savings that are on-track. These are important financial priorities you should put before student loan repayment.
An important next step is tackling debts. Focus on the debts that carry high-interest rates, like credit card debt, and pay the minimums on the rest.
Once you have these three steps in order, deciding how to rank other financial priorities will come down to your personal values and plans.
5 financial goals that can wait
When you’re serious about paying down student loans, it can help to identify expenses you should put off until your balances are paid down.
Here’s a list of financial goals that can probably be put on hold to focus on student debt.
1. Upsized housing
Getting in a nicer rental or saving up to buy your own home are worthy financial goals.
But if you’re putting more of your cash into your housing, you’ll have less available for paying off student loans. High-balance student loan debt can also make it trickier to qualify for a mortgage or even an apartment.
41 percent of college-educated Americans say they have postponed purchasing a residence because of student debt, according to our 2015 Student Loan Burden Report. So if you’re putting off upgrading your digs to tackle student debt, you’re not alone.
And if your current rental is good enough for right now, you can probably make it work for a few more months, or even another year. Plus, you’ll probably be rewarded with more discretionary funds that can be put toward a student loan balance.
2. 6-month (or more) emergency fund
Most money experts agree building an emergency fund is a vital part of a sound money plan. But they have differing thoughts on just how much is “enough,” with opinions ranging from $1,000 up to eight months’ worth of expenses.
The $1,000 mark is a good starting point, and having up to three months’ worth of essential expenses provides even more security. But an emergency fund equal to six months’ expenses (or higher) may be more than most people need.
Do you have a bit of a cushion in your savings account to cover most of life’s unexpected costs? If the answer is yes, consider diverting some of the money you’ve been putting into savings towards student loan repayment instead.
3. Non-retirement investments
It’s important to save a bit of your paycheck into a 401k, IRA or other retirement accounts. If you’re doing this, you can probably hold off on other investments until you’ve lowered your student debt.
While investing can be a great way to grow your money and build wealth, there’s not always a guaranteed return. But paying off debt and avoiding interest is a surefire way to lessen costs and keep more of your money.
“Paying down a balance with an interest rate of 10 percent is the exact same as earning a return of 10 percent on an investment,” Nordin points out.
4. Charitable giving
The impulse to do good with your money is a noble one. However, when you’re struggling with debt, it may not be the best time to give your cash away.
If you have an altruistic impulse, consider giving in other ways. Volunteering or donating gently-used items can be great alternatives to cash gifts (and often come with tax write-offs, too).
The sooner your student loans are gone, the sooner you’ll be free of monthly payments. Once you’re done writing checks to your lender every month, you can give to the charity of your choice without compromising your finances.
5. Bucket list items
A big motivation to get better with your money is so you can afford to achieve your dreams. Whether you want to travel internationally, start a small business, or even own a luxury car — you’ll need money to do it.
But pulling the trigger on these too soon can take money away from paying off student loans. Even worse, chasing your dreams too soon could land you in even more debt.
Finding the right balance
The key here is finding balance or ways to create enjoyment and fulfillment with your current budget so you can stay on-track for big-picture, long-term goals like paying off student debt.
“Life happens, and you’d better stop and have fun along the way — with the perspective that you are planning for your future alongside that,” explains Nordin.
It takes some creative thinking, but there are plenty of ways to maximize enjoyment on a minimal budget. If you love to travel, try and take local trips to satisfy your wanderlust.
For those dreaming of entrepreneurship, a low-investment side hustle can be a cheap way to ramp-up. And if you have expensive tastes in cars — well, you can always test-drive a hot model at the dealership.
Whatever your financial goals are now and in the long-term, being proactive and intentional with your money will help you make the most of it.
“If you’re not being proactive, managing your numbers — nobody else is going to be doing that for you,” Nordin says. “It’s important for people to think of themselves as their own chief financial officer.”
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