By: David Specht-Boardman, class of ‘14
Graduation. It’s a big step. You begin the next exciting phase of your journey and take everything Point prepared you for and start your career. Graduation also means figuring out how to pay back your student loans and becoming financially independent.
Here’s some tips to budget like a pro that I’ve personally done and picked up from others along the way:
- Know you’re not alone. The average Pointer grad from 2017 had $25,918 in student loan debt and 75 percent of the class had debt.
- Celebrate your first paycheck. The paycheck I earned after finishing my degree was a big win! Celebrate that win and do something fun with it. I know this isn’t good financial advice, but I believe to generate good financial habits for the rest of your life, you have to celebrate the wins you earn (more on this later).
- Make a budget. Taking 20 minutes to write down your income and expenses puts you ahead of most people. After college, I used “envelope budgeting.” Take out cash for each budget item like gas or groceries, put that amount in each envelope, and once you spend what’s in the envelope, don’t spend any more on that item. This helped me track how much I actually had to spend rather than putting it on the intangible credit card.
- Create an emergency fund. Set $1,000 aside as quickly as possible. It’s not a matter of if an emergency happens but when. My car battery died a couple weeks ago and cost me a couple hundred dollars to replace. These unexpected costs can put you right back into debt, which can be really discouraging after all your hard work. With an emergency fund, you pay these off in cash and keep chipping away at your other debts.
- Use the snowball effect. Write down your debts from smallest to largest and pay off each loan starting with the smallest. Each time you pay off a loan, take that monthly payment and add it to the payments on the next loan to pay it off even quicker, hence the ‘snowball.’ For all you math and business majors out there, I know it makes the most sense to pay off your highest interest loans first. But, like we talked about in step two, a healthy financial lifestyle is about building good habits. If you start with your largest loan and it takes years to pay off with no wins in between, it’s easy to get discouraged and just go back to paying those minimum monthly payments.
- Pay yourself first. This is counterintuitive, especially since we just talked about paying off debt in step five, but this is what truly wealthy people do. Retirement isn’t just a conversation for our professors, it’s something you should think about now. With compound interest, making small contributions now to a retirement account has enormous impacts later in life.
- Find a legit place to live. Point is a great place to live and has relatively low rents and mortgages. Regardless of whether you move somewhere else or stay in Point, be sensible about what you can afford. Typically, your mortgage or rent should not be more than 30 percent of your income.
If you follow these steps, you’ll be on your way to budgeting like a pro and tackling your student loans. When you do achieve financial independence, I hope you join me and the countless other alumni who give back to Point so future Pointers have the opportunity for a great education.