The Student Loan Grinch

Holiday tableIt’s the holiday season.  Time for succulent turkey and stuffing, mouthwatering prime rib, an eggnog sweet potato bake (yep, this looked like a yummy recipe), roasted apple salad, creamy pumpkin pie, and holiday cheer!  Ah, maybe not for student loan borrowers. People are going to Hawaii, Bali, Tahiti, or the Caribbean to escape the cold.  Except for student loan borrowers. People are Christmas shopping for family and friends.  They are buying for themselves a new coat, a holiday outfit, a new car, or a new PlayStation for their children.  Maybe not the student loan borrower.

Grinch statueWhy?  The Student Loan Grinch is why.  In other words, student loan debt is the Grinch that stole the holiday season for many student loan borrowers.  If your student loan monthly payment is more than your mortgage, if your total student loan debt is more than your annual income, if your monthly student loan payment is more than you can afford, you probably won’t be enjoying the holiday season.

How to avoid the Grinch

SAVE, SAVE, SAVE!  Remember in my Are You Saving for College blog I mentioned that you should have a money plan.  Remember “Fail to plan, plan to fail?”  Did you set up your money plan?  Create a money plan and get your financial house in order.

Do you know where your money is going? Do you know how you’re spending your money?  Without a money plan, you have no clue.  You won’t know if you have money to save.  You won’t know that you’re spending money on things you don’t need; and this money should go to savings instead.  Have you heard of the 50-30-20 budget rule?

  • 50% of your paycheck is used for living expenses, such as housing, transportation, and bills.
  • 30% is used for entertainment, recreation, gifts, and dining out
  • 20% should be saved for emergencies.

This rule works provided you are already saving your pre-tax pay into a retirement savings at work.  If not, you may want to reduce the 30% to 20% and save that 10% for retirement.  In other words,

  • 50% of your paycheck is used for living expenses, such as housing, transportation, and bills.
  • 20% is used for entertainment, recreation, gifts, and dining out
  • 20% should be saved for emergencies.
  • 10% should be saved for retirement.

Account for every dollar.  Review your money plan and tweak it when needed.

Get into the habit of saving

Gold piggy bank with cash imageU.S. News & World Report has an article called, “7 Habits You Can Learn From Highly Successful Savers.”  Here are the 7 habits that they offer:

  1. Pay yourself first. In other words, save.  Motley Fool reported that “a frightening 37% of adults aged 35 to 44 have absolutely no money in a savings account.”  Follow the 50-30-20 budget rule above.
  2. Avoid lifestyle inflation. When you receive a pay raise, save the increase instead of spending it on unnecessary things.  Increase your retirement contribution or increase your monthly savings amount.
  3. Be frugal; it pays off. Plan on spending less than you earn.  Remember if you buy a latte a day or dine out frequently, you’re killing your money plan. You don’t need a luxury home or car.  You don’t need designer clothing.  You don’t need to eat gourmet foods.  In the past, shopping was my therapy when I was depressed or stressed.  I had high credit card debt buying all kinds of stupid, unnecessary things.  Some I never used or used once.  The best therapy is to live modestly and save money.  Here’s a thought…save your money for a dream vacation to reward yourself for being a successful saver.
  4. Save for retirement. Set aside 10 to 15 percent of your income toward a retirement plan.  Or, at least match your employer’s contribution if they offer one.  For example, if your employer matches 5% of your income, contribute at least 5% of your income.  That’s a total of 10% of your income!  By age 30, you should have saved the equivalent of your annual salary.  So, if you make $55,000 annually, you should have at least this amount in your retirement account when you turn 30 years old.  At age 40, you should have at least $150,000 saved.
  5. blank Scrabble tiles with tiles spelling plan on them.Set goals. Yes!  Have a money plan!  You know you’ll need to replace your car or large appliances, and make home repairs, so plan and save for it.  Save for vacations instead of using credit cards.  In the past, I’ve used credit cards for my vacations and I suffered later with a large credit card bill.  Not smart.  Get a second job to help save more money.
  6. Regularly review expenses. Review interest rates and insurance policies.  Pay off your credit card bills, so that you can save more.  Review expenses to see if it’s still necessary.  Should you adjust your auto insurance policy?  Can you refinance your mortgage to reduce the interest rate and monthly payment?
  7. Save for emergencies. You never know when or what will happen in the future.  Plan for unexpected expenses; such as family crises or medical issues.  The rule is to save 3-6 months of your pay.

Check out these apps to help you save money:

  1. Joy (iOS)
  2. Trim (website)
  3. Honeyfi (Android & iOS) – for couples
  4. Twine (iOS) – for couples
  5. Mint (Android & iOS)

Create your money plan, get your financial house in order, and then…

 Save for College

glass jar of money with blue college label on itI want to add one more habit and that’s to save for college.  In my How to Save for College blog, I told you about college saving plans.  Have you opened one yet?  Are you contributing monthly to it?  Ask your friends and family to contribute to the plan as a holiday gift.  It’ll be the best gift you or your child will ever receive!

I have seen too many families depend on financial aid.  How financial aid awards are determined isn’t a big secret as some families have expressed to me.  The U.S. Department of Education (ED) uses an EFC formula to determine a family’s financial need so that families who are truly financially needy receive the help that they need.  The rest of us should be saving for college and not borrowing student loans.  When you borrow student loans, you’re inviting the Grinch into your life.  If you’re going to depend on the government to pay for college, use the college savings plan and not student loans.

Start Now

Saving for College mentioned, “If you start saving from birth, about a third of the college saving goal will come from earnings.”  Time is on your side when you start early.   I’m not saying that if your child is, say, 8 years old, that it’s too late to start.  Whether your child is a month old, 9 years old, or 15 years old, start saving now!  If you’re going to college in a year or two, start saving!  Every dollar that you save will help you borrow little or no student loans.

Use your state’s 529 college saving plan

This is the best type of college savings plan for most families.  Don’t know if your state offers a plan?  The College Savings Plan Network offers their My State’s 529 Plan.   See if Smiley face with Santa hat winkingyour state offers a plan and get instructions for enrolling in the plan.  I’ve seen many news stories reporting that more people are using the 529 Savings Plan to save for college.  Do you like trends?  This is a fabulous trend to get into.  If you’re not into trends, still open a 529 Savings Plan today!  It’s a smart move.

Stay tuned for my next blog.  Please share my blog with your friends.

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Gail Sasao



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