Student Loans

Financial Mistakes You Make In Your 20s

June 4, 2018 By Twila VanLeer

Financial Mistakes Made in Your 20s — Trim your expenditures to match the income, being sure to pay yourself with a little savings each pay period

Humans don’t learn all there is to know about personal finances in a day. It’s commonplace for people to learn by their mistakes early in life.

Among the most common financial errors people make in their 20s are:

Ignoring your financial flow.

A first job sometimes is the shocker. You find out after a few paychecks just how much of what you have earned goes into taxes and deductions such as health insurance. If you don’t pay attention, your expectations compared to your realities may get out of sync. Learn from the experts who say, “It’s not what you make, it’s what you keep that counts.” And develop a realistic budget. Trim your expenditures to match the income, being sure to pay yourself with a little savings each pay period.

Letting friends create your financial agenda.

It may be a tough decision, but learn to say no when your friends suggest ways to spend money that you really can’t afford, such as eating out or stopping at the local watering hole for a day’s end refresher. Use public transportation if possible, and brown-bag lunch now and again.

Not realizing that time will cure some financial stresses.

It is likely you will make more in the future, but don’t wait for the future to start serious saving. If your company has a 401(k) option, hop on it. If you can’t take full advantage of the plan to begin with, keep upgrading your contribution as raises come along. It’s the beginning of a trend you should maintain throughout your working career. If you save $200 per month beginning at age 23, with a 6 percent rate of return, you will have $425,000 when you retire at 65. If you wait until you’re 33 to begin, the same savings will only total half that amount.

Work on getting student loans repaid.

Some 2.6 million student loan borrowers in the first quarter of this year opted to pause their monthly payments through forebearance, a government allowance that stops payments, but allows interest to accrue. Make such a move a very last option if you possibly can. Ask your loan servicer first for deferment, but if that can’t be managed, opt for an income-driven repayment plan. If you never get to the point where your payments can be raised, the debt may be forgiven after 20 to 25 years.

Consider more debt for grad school.

Though a higher degree is likely to provide more financial flexibility in the future, additional education should be a carefully planned option. More Americans are getting advanced degrees – about 12 percent of those 25 and older. But it is wise to plan. Go to school part time and take advantage of any tuition assistance your work may provide. Before you sign up for classes, use a student loan calculator to see what debt you will have accumulated in exchange for enhanced earning ability. It may shock you and encourage you to take baby steps toward an advanced degree rather than incur more student debt.

Help Children Avoid Student Debt

February 5, 2018 By Twila VanLeer

Where does the time go? All of a sudden, the playground phase is past and your child (children) are getting serious about college. If you are lucky, you will have started preparing while they were still small, but it’s never too late to take steps that hopefully will see them through higher education without an unmanageable amount of debt.

Share these tips with your college-bound kids:

Start savings accounts that will give a better return than regular savings. If you don’t have a large amount of cash to begin, open a term deposit account with whatever you can afford. Many financial institutions offer perks such as low (as little as $5) initial deposits; allow you to continue making deposits through the term; set the term from 12 months to five years.

If your child has money from gifts or from early jobs, teach him or her wise money habits, putting a set percentage of personal money into savings. The best gift you can give your child as he or she sets out to undertake adult activities is to arm them with sound financial management skills.

Encourage high school students to work hard, taking high school concurrent enrollment and Advanced Placement courses that will minimize the number of college courses they will need to get a degree. Advise that they look at scholarship opportunities and maintain the grades needed to take advantage of them.

The Internal Revenue Service has authorized two types of education plans: prepaid tuition and college savings. Paying tuition ahead of time avoids the increases that are tacked onto tuitions nearly every year. You can purchase credits at current prices for attending in-state colleges and universities. (Helping the student to make a choice of a higher education institution well ahead of time can ease the issues at enrollment time.)

College savings plans, money set aside in investment accounts, can cover tuition, fees and room and board. Make a careful study of these “529 plans” and get an early start on savings.

Bottom line: Start your planning as far ahead of high school graduation as feasible. If possible, be as specific as you can about your higher education goals so you don’t waste time by too-frequent course adjustments.

Pay Off Student Loans Faster

October 31, 2017 By Twila VanLeer

One of the main reasons Millennials don’t invest more money toward retirement is that they are saddled with education debt. The average amount of student loans in 2016 was a record $37,172. That’s a 6.05 increase over the previous year, according to Cappex.com, a college scholarship website.

Bankrate.com studied the issue and came up with these suggestions to help those with student debt to get out from under the load faster:

Treat the loan as you would a mortgage, making larger payments to reduce the principal faster. A student loan of $25,000 with 6.8 percent interest and a 10-year payback period would cost $288 a month. Upping the payment to $700 per month would clear off the debt in three years.

Make payments twice a month instead of monthly. That would help even out an increased payment. After the initial push to get the loan paid, the money that had been absorbed in student debt then becomes available for other things, including a mortgage and savings toward retirement. Or it could be used to help a child through college, saving him or her the same burden of student debt.

Many experts advise those with student loans to create a plan for paying off in three to five years. Seeing the plan in black and white gives a better sense that this is something that can end. It becomes the basis for a goal that the individual can commit to.

The example is a couple who have $50,000 in combined student debt. They earned about $100,000 a year jointly. They established a budget and cut back on spending. They had bonuses from their jobs that they dedicated to the drive to become debt-free and they put $800 per month into the loan payment. They had paid off the loans in two years where it would have taken eight years if they had made only minimum payments.

Having money put into savings automatically bysteps the temptation to spend everything you earn. Don’t use checking and/or savings accounts you already have. Keep a separate account for the purpose of student debt reduction.

Minimizing the amount of loan assistance you need to complete college by working part-time is a counter step to be considered at the outset. Planning ahead, being willing to sacrifice to keep loans at the lowest possible figure and keeping focused on long-range personal finances will help. Falling off the budgetary wagon when personal wants and desires get first attention will lead to future problems.

The very best advice: live within your means and be conscientious about saving.