Smart Ways to Save Money After Paying off Student Loans
In 2015, nearly seven in 10 graduates from U.S. colleges left school with student debt to repay, according to The Institute for College Access and Success. After years of scrimping and saving to repay student loans, it's only natural to have a huge feeling of relief as you finally find yourself free of this debt.
Now that you're done paying off your loans, it can be all too easy to start spending your newly free cash on fancy new gadgets. However, this is a prime opportunity to further your other financial goals like buying a home or saving for retirement.
Celebrate the Achievement in a Small Way
Although paying down student debt doesn't have to warrant a big party with 50 of your closest friends, you should still celebrate the achievement. Buy yourself a small reward or enjoy a fun night out with concert or show tickets. Take some time to enjoy your student debt-free life before buckling down and deciding the next step on your financial journey.
Check Your Financial Wellness
Keeping on top of your finances and understanding how to budget are both smart ways to save money. Any change in your financial picture, including paying off student debt, means taking the time to sit down and reevaluate how you're spending your paycheck. Money that was previously used to pay a loan can now be saved or put toward important purchases – or to pay down other debt. Based on your current financial position, formulate both short-term and long-term saving goals and decide what to do with the extra funds. Items to address include:
- Short-term savings – Do you have financial savings equal to months of income in case of a job loss or an unexpected large expense? If not, make this a high priority.
- Credit score – If you'd like to someday apply for a mortgage or car loan, you'll need to ensure your credit rating is sufficient. Take a look at your credit report and determine if you need to pay down other debt, such as a credit card loans, to help improve your chances of getting approved for future loans.
- Long-term goals – Where do you want to be in 10 to 20 years? Do you need to save money to get there? If so, set a goal for savings and start putting money away now. If you have trouble saving, open a separate savings account and set up an automatic transfer on payday to build up your account first and make savings a priority.
- Retirement planning – If you're not maximizing the employer match on your company's 401(k) plan, you should increase your contributions to make sure you receive this important benefit. It's never too early to start saving for retirement and giving your investments time to grow.
Set Smart Savings Goals and Stick to Them
When setting goals, you may want to think in percentages. Saving just 5 percent of your paycheck seems like a small amount, but it can result in a sizable balance over the course of one year. After setting goals, you'll need to make sure you stick to them. Motivate yourself with rewards. Picture the house you're saving for or allow yourself a small reward after saving for an entire year. Reevaluate your financial position from time to time and set a budget based on your lifestyle. For example, millennials spend more than other generations on coffee and food on-the-go, according to Equities.com, which can be incorporated into monthly spending. And millennials might want to consider saving up to 22 percent of their paycheck for retirement, according to NerdWallet. Learn how to invest by taking a class on personal finance or use personal financial software as a guide for budgeting. By taking an interest in your financial future, you can stay on track with your savings goals.
Paying off student debt is an important achievement for college graduates. Remember to keep the positive financial momentum going when the time comes for you to plan out your spending and savings goals for the upcoming year.