Titan Money Matters: Save money for your future debt

In Columns, Opinion

Where do you see yourself in five years?

Hopefully you’ll be a post-graduate already nestled into a career. Maybe you’ll have already traded in your starter car for a brand new, off-the-lot roadster. Will you be renting, owning or still living at home?

Those goals may seem a bit out of reach to you right now, especially if you’re still plowing your way through your lower-division undergraduate courses. How can you contemplate whether or not you’ll be ready to purchase your first home in five years when you haven’t passed the EWP?

OK, so maybe five years down the road is an intersection too far away to put much thought into, but you should still be thinking further ahead than one semester. So I ask you: Where do you see yourself in two years?

Depending on how many units you’ve completed thus far, the answer will vary. If you’re a sophomore or younger, in two years you might be ready to move out on your own. Or, you might be trying to get started on building healthy credit.

If you’re a junior or older, you should be thinking about your living situation in two years, but also something more important. Retirement planning, though it may seem a lifetime away, begins at this stage in your life. The longer you take before you start saving for retirement, the less money you’ll have to ensure your post-retirement routine doesn’t involve part-time customer greeting at your local Walmart.

Most importantly, if you’re a junior or senior and you’ve been financing your education with student loans, then two years in the future could be a scary place.

I sat down just the other day with a friend to talk about his finances. He recently graduated from college. What scares the crap out of me is how much debt he has from student loans.

Over the course of his education, he’s racked up nearly $50,000 in student loans.

Considering the rate at which our university’s tuition is increasing, a balance similar to his after four years of school isn’t hard to imagine (although in his case, he spent some time at a private university, which explains his extreme debt).

According to the website of the Consumer Financial Protection Bureau, the average price of a four-year, in-state university is $21,447 per year. This figure includes tuition and fees, room and board, books and supplies, and even some extra expenses like laundry and entertainment.

If you relied on student loans for all your education expenses, all four years, and with no help from family, then you could owe nearly $100,000 after you graduate. The website also provides this disturbing statistic: The average salary one year after a student graduates from college with a bachelor’s degree is $30,922 before taxes.

Although the statistic doesn’t account for the fact that some majors make more money after graduation, and some graduates from specific universities are paid more, the crux of the issue is this: Debt is bad and money is scarce.

Rather than praying you’ll land a better-than-entry-level job right after college and stressing about your soon-to-be due loans, start preparing to pay them off now.

Your first priority is to minimize your debt obligations. If the only debt you have after commencement is student loans, you’re off to a good start.
Credit card debt and auto loans will significantly decrease the amount of funds you’ll have available to pay off your student debt. Monthly payments on these loans can range anywhere from $200 to $1,000 for several years.

If you typically pay that much for the combination of credit cards and your car every month, can you imagine having to shell out the extra money for your loans?

The worst case scenario is that you might end up defaulting on the loans because you can’t afford all your bills. If that happens, say goodbye to your chances of purchasing a home any time soon.

Your next priority after becoming semi-debt free is to maximize your savings. The typical grace period before you start repaying a student loan is six months after graduation. This may sound like plenty of time, but if you’re one of the many post-grads struggling to find work after college, six months isn’t enough.

The more money you are able to store away in a savings account, the better prepared you’ll be when it comes time to start making payments.

My grandmother’s advice to me when I scored my first paycheck was to save half every time. Fifty percent, although a good idea on paper, is really aggressive and may be counterproductive. You want to be a disciplined saver, but if you can’t enjoy your earnings, you might be disinclined to save anything. You would be better off saving up to 30 percent.

Before you get carried with unnecessary calculations, trying to figure out 30 percent of your income, keep it simple by sticking to this strategy: Save $30 from every $100 you get paid. That wasn’t too complicated, was it?

Lastly, you need to have a good understanding of how much interest is being charged on your loans. The reason your payments will be so astronomical is because of the effects of interest on your loans. For example, federal student loans like Perkins and Stafford loans could carry interest rates ranging from 5 to 7 percent.

Two years from today, future-you could either be thanking present-you for planning correctly, or cursing present-you for dropping the ball. Whether you’re planning your grad party or starting out in your new career at that point, what you do today will set the foundation for success.

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