After completing my college degree, as I venture into the professional world and start my first job, it is really surprising that I don't feel excited at all. Instead, I am tensed and nervous about the fact that I am supposed to pay off my student loan and still save for my future. This nagging feeling is hindering me from celebrating my first real success and my paycheck suddenly seems not big enough to accommodate my student loan EMIs and my daily bills together.
Savings is important, that is a fact. But it is possible only if I have something left to save after paying off my student loan and bills. So, now is the time to decide which is a priority. Is It paying off student loans and bills(daily necessities, credit card payment) without saving or saving at least a little by making some adjustments here and there along with loan repayment? The situation is truely overwhelming due to the fact that on one hand, I don't want to create a bad credit report by skipping or defaulting or my repayment schedule, inviting penalty charges and thus, putting additional pressure on my budget, and on the other hand, I am unable to accept that after 15 or 20 years, I wake up to the fact that my saving is zero.
So, how should I handle it? Let's discover together.
1) Assess my finances - The most important requirement of the moment is to take note of my current monetary situation. This includes my paycheck amount, the total EMI amount that I need to shell out every month, how much savings I already have, the approximate amount that I spend on my necessities each month and also my repayment terms and conditions. This will give me an idea about my income and expenses. This will also help me identify any area where I can cut spending and channel that money towards the loan or savings. A Google sheet or any such similar tool that can be maintained online and accessed from anywhere is convenient in this case so that I can update any details as and when they come to my mind instead of keeping it pending for entry and forgetting about it completely.
2) Make loan repayment a priority - Loan repayment is a priority, and that is obvious. There is no doubt about that. Therefore, an Income-Driven Repayment (IDR) plan is quite useful in this case. IDR is ideal for student loans, due to the following reasons. It designs and adjusts the monthly EMIs of my student loan as per the income level. This results in lower monthly payments compared to standard repayment plans. Payments can also be adjusted as per changes in financial condition, making it a flexible and affordable option. If paid consistently, without any gap, after a long period of time, typically 20 to 25 years, the remaining loan amount is waived off. But, keeping aside these pros, there are some cons, like recertifying your income every year, meeting certain eligibility criteria, and paying a higher interest rate. A Standard Repayment Plan is also an option in this case.
3)Set aside savings - Here comes the next step, where I should plan out my savings amount. After taking note of my income and deciding the repayment plan, now is the time to decide how much money can be saved, without compromising on the educational loan installments. For this, I also need to calculate how much I might need to spend on my daily necessities and then allocate the rest to my savings account, even if it is less.
4)Emergency Fund - An emergency fund serves as a safety net during financial emergencies, which may be related to medical, unexpected cash outflow due to home or any other repairs, sudden job loss, or any other unforeseen situations. It ensures that we do not fall into a further debt trap and remain financially stable at all times, covering for our long-term savings. I can always start creating an emergency fund by putting aside a small amount at the end of every month from my income, either manually or by automatic transfers from my bank account. But I also need to have a financial goal regarding how much I actually wish to save in the fund and at the same time, keep my spending habits under control.
5)Control spending - It is crucial to keep track of our spending and control areas where spending is unnecessary. If I dig into my monthly expenses, I am sure I will locate things like subscriptions that I never use, things that I buy impulsively but remain locked inside the cupboard for months, dine out or order food even when I can easily cook something at home, book a cab to go somewhere when I can take a shared or public transport, etc. These are the areas where spending can be consciously controlled, and I can definitely try to do so.
6)Arrange for side gigs - Extra income is always a good opportunity to ensure some cash inflow to my account to pay off my student loan, apart from my salary from my full-time job. Side hustles can be anything that interests us and can be easily converted into an earning opportunity. Freelancing also offers the chance to earn flexibly. These income sources are growing rapidly in the current economic scenario globally, bringing a huge revolution into the job environment. In this manner, I can definitely repay my educational loan while saving up for the future and paying my bills.
7)Leverage investment options - There are various investment options available in the market that have low risk but offer sustainable return. I can always consult a financial expert who is a professional with proper core knowledge and expertise in selecting products that suit the client's risk profile, financial goal, and time horizon. Moreover, investments started early lead to the creation of a balanced and compounded corpus, which guarantees financial stability.
8)Loan Forgiveness and Assistance Programs - These programs may be government schemes or employer-based opportunities. But they often offer refinancing plans that bring down the overall loan amount by lowering the interest rates of educational loans. I can do thorough research on such schemes and find out whether I am eligible to avail them or not. This will help me to manage my loan alongside saving, spending and investing.
Conclusion:
Thus, the above are some simple steps that can help me balance my student loan and savings plans. Even though it is not an exhaustive list, these smart moves can help you or anyone else enjoy and celebrate their first paycheck and organize their financial lives better. Any other ideas? Let me know in the comments.
