How do I even create assets when I have debt from my college loans?
I feel like I should be paying off my college loans before I even begin to think about investing in things like bonds, stocks, etc. Should I think about managing my finances like this or is there a better way? #finance #financial-services #investment-management #investing
6 answers
John’s Answer
Jesse,
Great question. A lot of young people feel overextended when it comes to balancing investments vs. student loans. While there are differing opinions, I err to the stance of building cash liquidity in your first few years after graduation. Having a "liquid fund" that can be used for emergencies, or unexpected costs can be a great asset for you, as you will not be drawn further in to debt, relying on credit cards. You want to decrease your debt amount rather than increase it, so having cash on hand will be beneficial. Stocks and bonds are not as "liquid" or easily accessible as cash. There are settlement dates, fees, etc.
You should contact your university and see what your payment plan options are, the interest rates charged over time, etc. You want to know the ins and outs of the payment plan moving forward so that you can pay what you can afford without overexerting yourself financially. If/when you are employed, your company may be able to withhold a percentage of your paycheck that is directly sent to your savings to pay off student loans. Like Gary said, with these funds being automatically withdrawn, you can budget for the number that you'll actually see on your paycheck without them.
I would take action on making a plan for paying down your debt over time before actively investing in stocks and bonds. Once you have a plan in place for systematically paying down your student debt, you can analyze your budget and spending to see if you have extra funds that could be used for investments. However, I would make it a priority to build your cash reserves and focus on creating a plan that fits your lifestyle. Don't get discouraged by the numbers - it will take some time!
Nadia’s Answer
Remember everything takes time but with good budget and spending planning everything is possible. If you are just starting out, once you are employed after college, start a cash reserve emergency savings plan as a certain percentage of your income, also make sure that you contribute to 401 k to take advantage of the employer matching plan. You can pay your college loan over time. During this time you may need to limit your other spending. Try to take advantage of free resources and activities in your area which will help you enjoy life without negative impact on your finances.
Netanel’s Answer
Depend on your debt, you may want to look into an investment that will bring in money where you can then use it to pay off debt or reinvest it, check Peer Street website, this is an example of how you can invest in real estate in a small amount for a specific return.
The fact that you have debt does not mean you have to pay it first, think about how to bring more money in with less time spending.
Netanel recommends the following next steps:
Matilde Zelaya
Matilde’s Answer
Hello, I suggest you start preparing your budget if you don't already have one. You need to know exactly how much and how you are spending your money and make adjustments as needed. Take advantage of your employer matching contribution to your 401k and always pay your debts to protect your credit ratings. If you analyze your budget you might identify areas were you are overspending and you might consider changing few habits that will allow you to achieve savings.
Gary’s Answer
Hi,
Great question and you will find many answers to this one...you have to make your own decisions on how to manage this basiclly but I will offer some advice as well. I read a lot of books by a David Bach and the Finish Rich series ... www dot finishrich dot com. One of his best pieces of advice is to pay yourself first by making your savings automatic...you can do this by having your savings come out of your pay automatically and go into a retirement, savings or other account and then you will not miss it in your paycheck. Then you can focus on paying down your debt. Another thing a lot of people do is to work a part time job or business to pay down debt along with their full time job. Hope this helps...good luck!
My approach would be to build a short term liquidity fund to cover 6 months of your living expenses in case something unexpected happens. I would also continue paying my student debt on time to protect your credit profile. One you've established a short term liquidity fund, I recommend focusing on reducing your student debt before creating an investment portfolio. Matching your employer's contribution o your 401-k plan I a good idea. If the student loan is consuming all of your financial resources, however, you may want to approach the bank or loan provider and renegotiate repayment terms. Good luck!
Maryann Robinson
Philip’s Answer
If your budget still has funds left at this point, people often take an either/or approach - either pay extra towards student loans or invest the difference. However, it is perfectly reasonable to split funds between various goals. Personally I wanted to have my student loans paid off by a certain birthday so found a calculator to figure out how much extra to pay each month (automating payments is highly recommended) and invested the rest. An added benefit of starting to invest earlier is that once your loans are repaid and you have extra funds you will already be an experienced investor.