contributed by Jenna Smith
When you’re in college, you learn a vast amount of information about almost everything under the sun. Unfortunately, unless you’re a finance or accounting major, it’s unlikely that you’ll come across any Personal Finance 101 classes before you get out into the rat race.
This might not be a big deal if you didn’t have a student loan, but because you have not had the opportunity to learn the basics of personal finance you will probably have little idea about how to get the best rates for your student loans, what to do if you get behind in your payments, or how to refinance student loans. Additionally, you may only have a vague idea about how to make a budget so that you can reach your financial goals after college.
Let’s discuss these 3 issues to help you quickly get up to speed.
Student Loan Overview
1. How to get the best rates on your student loans.
Begin by comparing student loans. It’s advisable to use a comparison website to be able to compare several banking or lender programs, compare minimum and maximum rates of interest, compare monthly payment, compare total costs, and compare APR. With a creditworthy cosigner, apply to several programs that you like and for which you’re eligible. By applying to several at one time, you increase your odds of getting approved and getting the best terms.
2. What to do if you get behind on your student loan payments.
It’s costly to fall behind on your student loans. Your credit rating will take a hit, your late fees will begin to pile up, and your interest rate will begin to grow. Additionally, the federal government has the power to confiscate your tax refund and garnish your wages to pay it off.
The first thing is to contact the loan servicer to find out how much you owe and work out a payment plan. If you are able to afford the monthly payments, then set up an automatic billing payment system so that you can negotiate for a reduction in your interest rate. Another option is to apply for student loan refinancing and consolidation.
A bank or lender will make a decision based on your credit score, your annual salary, your other financial assets, and your type of college degree. If you are still in school, then they will ask for a certificate of enrollment. If you don’t get approved, then try applying with a cosigner.
How To Create A Budget That Works
You need a budget because it will help you stay on track with your financial goals. Without one, your finances are not under control. As a result, you have no idea where your money goes, if there is a way to spend less, how to handle unexpected expenses, or how to start saving for a bigger financial goal.
1. Define your goals.
In order to create a budget, you need to start by defining your financial goals and when you hope to reach them. Understanding how a budget will help you achieve short, medium, and long-term goals will keep you motivated to keep on writing down the amounts of money coming in and out of your life.
2. Choose your tools.
Next, find a budgeting tool that you find easy to use. There is an abundance of free and paid tools available. Moreover, when it comes to paid tools, software companies will give you a trial offer for a week or a month to try out their product to see if it is right for you. So, you’re not spending money on researching the best budget software on the market.
3. Analyze/itemize income and expenses.
Now that you’re clear on your goals and have found a free or paid budget tool, you should identify your income and expenses and then enter them into your budget tool.
The most common approach is to do this by category, where expenses can be grouped first as ‘Recurring’ and regular bills that can be expected each month and usually don’t vary greatly, and then more specifically by category (e.g., Utilities, Food, Clothing, etc.)
By grouping expenses into categories, you can quantify expected expenses and plan for spending accordingly. Further, many budgeting tools do this automatically as they reconcile with banking accounts. A lot of the work here is upfront, as you label certain expenses early on, and the software learns over time how to categorize costs automatically.
At this point, ‘budgeting’ may seem to be on auto-pilot, but you still must pay attention to the accuracy of this automatic labeling, and then consistently adjust your budget based on changes in expenses and/or income.
4. Limit spending based on anticipated income and expenses
Finally, keep on tweaking your budget by becoming aware of how much money you have left over after you receive money and pay for all your necessary expenses. By understanding your inflow and outflow of money, you can make any necessary adjustments, especially when and if it changes over time.
A budget is only as good as its execution. No matter how convincing it seems on paper on a digital dashboard, it’s in the day-to-day transactions for food, gas, recreation, and related events that a budget works or fails.
5. Adjust and repeat based on progress/lack of progress towards goals.
Notice one category is consistently more or less than anticipated? Adjust the amount.
Earning more or less than you’d planned? Adjust spending accordingly. If you’re making more, pay down debts first and create a savings plan. Making less? Reduce spending or eliminate categories altogether. (Hard to have a ‘rain day’ fund if you can barely afford your car payment.)
The big idea is that a budget should be a framework to plan for how you spend your money, but flexible enough to adjust to life and its financial ebbs and flows.
In summary, you will probably need to learn about personal finance outside your curriculum. This can help you get student loans at the best interest rate, figure out what to do if you fall behind in your payments, and help you take control of your financial future through budgeting.
image attribution flickr user tulanepublicrelations