Education Archives - Hanover Mortgages

November 2, 2021

How to Create Your First Budget

Creating a budget can offer you peace of mind and give you more confidence in managing your finances. A basic budget is all you need to take charge of your money—and help achieve more of your financial dreams.

Intro to Budgeting: What is a Budget?

A budget is a financial outline designed to measure and guide your income and expenditures for a certain period of time, such as one month, a quarter, or a year. With an understanding of the budget basics, you can track the amount you’re making compared to what you’re spending and saving.

Why do I want a budget? Consumer.gov says making a budget can help you determine your spending plan and in turn, show you where you should limit your spending and what you can afford to spend more money on.

There are many ways you can maintain a budget — with a spreadsheet, paper and pen, or through a budgeting app.

Whether you’re new to managing your own finances, never learned how to budget, or are tired of living paycheck to paycheck, this post is for you. In our Budgeting 101 guide, we’ll go over some budgeting basics, show you how to create a budget, teach you how to avoid common budget-related mishaps, and ultimately, give you a budget calculator and some budgeting tips to create a budget that’s efficient and functional for your lifestyle.

Need to know how to create a budget ASAP? Read end-to-end for a comprehensive course in Budgeting 101.

How to Create a Budget: 5 Actionable Steps

To plan your budget, you’ll need a few key pieces of information. With these basic components, you’ll have a foundation for your budget that you can tweak as the months go by and as your financial circumstances change. To get you a step closer to your financial goals, let’s go over how to create a budget step-by-step.

1. Calculate your monthly income after taxes

An accurate monthly income is the cornerstone of a successful budget. Without figuring out how much money you actually have in your wallet, it’s pretty hard to allocate funds towards saving, spending, and settling outstanding debts. But calculating your monthly income takes a little bit more effort than glazing over your monthly paychecks.

To find out how much you’re actually earning, you’ll need to do a little bit of simple math—don’t worry, we’ll walk you through the entire way.

Calculating your monthly income as a salaried employee

One of the benefits of being a salaried employee is knowing exactly what to expect on your paycheck—month in and month out—and this pay structure will serve as an added perk when you’re building a monthly budget. To calculate your pre-tax monthly income as a salaried employee, all you need to do is divide your annual salary by 12.

Now that you have your gross monthly income figured out, you’ll need to deduct taxes and other expenses that may dock your pay—such as medical benefits and contributions to an employer-sponsored retirement plan. We’ll show you how to estimate this number in just a moment, but first we’ll go over how hourly employees can calculate monthly income.

Calculating your monthly income as an hourly employee

If you’re an hourly employee, your monthly income isn’t always as consistent as you might like it to be, but with the proper budgeting technique you can definitely nail down a budget that maximizes your monthly income and gets you closer to meeting your greater financial goals. Here’s how to figure your monthly income as an hourly employee:

Let’s take a look at an example:

Keith is an hourly employee who makes $15 an hour working 40 hours per week, making his gross weekly income $600. Keith multiplies this number by 50 to reflect the weeks he plans to work throughout the year (minus his two-week vacation). Then, he divides by 12 and estimates that his gross monthly pay is $2,500.

Remember, this number does not factor in the deductions that may impact his take-home pay, so now he’ll have to subtract these from his gross monthly income to get an accurate picture to build his monthly budget.

Subtract taxes and other deductions from your gross monthly income

To get the most accurate picture of your monthly take-home pay, you’ll need to subtract taxes and other deductions from your income.

Federal Taxes: To find out your federal tax liability each month, refer back to your annual gross income that you calculated before. Then, compare your income to the federal income tax rates to find out what percentage of your income will go toward your federal income taxes. Once you’ve found this number, divide by twelve to estimate your monthly tax liabilities.
State Taxes: Calculating your state income taxes is essentially the same as finding your federal tax liability, but this time, you’ll need to refer to your state’s income tax rates. Multiply your annual income by your tax rate, then divide by twelve to see how much you’ll owe in taxes each month.
Social Security and Medicare Taxes: According to the IRS, the federal withholding rates for FICA are:
-6.2% for Social Security
-1.45% for Medicare
Misc: Depending on your financial situation, you may have other deductions to consider when calculating your monthly take-home pay. Use previous paychecks to help you determine how much money will be withheld to account for 401k contributions, benefits, etc.

2. Identify fixed and variable expenses

Once you have a clear picture of how much money you’re actually working with each month, it’s time to figure out how you’re spending it…or how you should be spending it. There are two main types of expenditures you need to account for as you build your budget: fixed and variable expenses. The difference between the two is that fixed expenses tend to cost you the same amount each month while variable expenses…vary.

Fixed expenses

Your fixed expenses like rent payment, groceries, transportation, and health care costs are likely to absorb a large chunk of your budget, which makes them all the more important to track as the months go by.

To determine how much of your budget is going towards fixed expenses, start by creating a list of your regular expenditures. Here’s a list of common fixed expenses to help you get started:

Rent
Mortgage
Car payments
Student loans

Once you’ve built a complete list, calculate a monthly estimate for each one, so you know how much of your income should be dedicated to it. If you’re not sure how much something costs, review previous bills and credit card statements to see what you’ve spent in the past.

Variable expenses

Whether you belong to a gym, go on a weekly date, or make a purchase on a shopping app, make sure you account for these costs in your budget. As opposed to fixed expenses that stick to relatively the same cost each month, these miscellaneous items may change month over month.

Some examples of variable budget expenses include:

Entertainment
Groceries
Dining out
Gas
Clothing
Dating
Ride-sharing
Utilities

Determining how much you spend on variable living expenses each month can be tricky since it may be rarely consistent, but it’s important to get a close estimate so that you can determine whether you can maintain the same spending habits or if you need to cut back in certain areas. Use your monthly bank statements to help you estimate your variable expenses, and in turn, set limits for each category.

How to factor expenses into your budget

If you’re using one of our free budgeting templates, simply input the values of these fixed expenses into your budgeting spreadsheet to help plan out your financial strategy each month. In the Mint app, you can connect your bank account to easily identify recurring expenses, or enter in your own budget for fixed expenditures.

3. Set savings and debt payoff goals

As you saw in step two, if you have student loans and credit card balances, you’ll want to attribute part of your monthly budget to paying them off. Each month, allocate a certain amount to these monthly payments. The sooner you pay off debts, the less interest you’ll pay overall, and the closer you are to meeting your greater financial goals.

When creating a personal budget, include these types of debts into your planning:

If you’re all caught up on your bills and want to want to stow away funds for retirement or save up for a new car, it’s helpful to establish concrete goals, then break them down into achievable bite-size chunks. Having trouble coming up with realistic, meaningful financial goals? Take a look at these short-term and long-term examples:

Short-term financial goals

Long-term financial goals

Establish a retirement budget to build a retirement account
Pay off your mortgage or student loans
Start your own business

If you’re using the Mint app, you can set up custom goals for your savings in the budgeting section. Simply add a budget, define a dollar amount, and monitor your progress.

4. Record your spending

You know that feeling when you’re checking out at the grocery store, the cashier announces your total, you swipe your card, and by the time you’re loading your grocery bags into your car, you realize you didn’t even register the total amount you paid. It’s a concerning, out of body experience—but we’ve all been there.

This is why tracking your spending is so important. It’s easy to become complacent about the amount of money you’re spending and end up with revolving debt ruling your finances. Depending on the budgeting method you choose—budgeting app, pen and paper, or online budgeting tool—you can pick a way to record your spending that best suits your lifestyle.

Here are a few tips to make expense tracking easier and more efficient:

Ditch the Cash: Stick to card payments if you have trouble keeping tabs on how much money you spend each month. This way, you can refer to your online bank statements to easily monitor your spending.
Check Yourself Before You Wreck Yourself: Make it a point to analyze your spending habits on a weekly basis. Collect any receipts or statements you have and check to see if you’re on budget or if you need to reel in your spending for the rest of your budgeting cycle. Budgeting will help monitor your spending so you are able to keep living within your means.
Go Old-School: If you’d rather skip the technology and take a more tactile approach to budgeting, a pen and a checking book will do just fine. Just be sure to make a habit of recording your expenses as soon as you’ve swiped your card.
Try the New-School Way: If you can’t be bothered to whip out a pen and paper each time you check out at the register, automated expense tracking might be a better alternative. Using the Mint app, you can connect your bank account to effortlessly record your spending and monitor transaction trends.

5. Track your budgeting progress, review, and revise

Creating a basic budget is a huge financial victory. It helps you ensure you can cover your expenses and reach for exciting milestones, like buying a house or paying off your student loans. As you continue to budget, make adjustments as you see fit. Your income, expenses or lifestyle might change, and it’s important to ensure your budget keeps working for you and your future.

Set up a budget schedule and make it a point to review your budget on a regular basis—each week, every month, or at least every quarter to see if any major changes, or milestones have taken place. Not only will this help you recognize and celebrate your successes, but it will also encourage you to reevaluate and tailor your strategy as needed.

Budgeting Breakdown for Beginners

Now that you know how to make a budget, it’s time to discuss best practices and budgeting basics to ensure your budget works for your money and your lifestyle.

How to Choose the Budgeting Style That Works for You

Here’s the thing about budgeting. There’s not really a one-size-fits-all approach that works for every individual. Depending on your spending habits, financial goals, lifestyle, and your relationship with money in general, one budgeting tactic might make more sense for you than another. Let’s take a look at a few budgeting methods you can try.

Keep tabs on transactions with the envelope method

The envelope system is a simple budgeting approach that involves spending with cash instead of plastic.

If you budget $100 for eating at restaurants, put that amount into an envelope. When the money’s gone, you have to wait until next month to eat out again.

If you budget $200 for groceries, put $200 in a “grocery” envelope. If you’re at the checkout line and the total comes to $203, you’ll need to put something back.

The envelope method helps you be more strict with your budget. The pockets of cash are a visual and tangible reminder of how much money you’re dedicating to each area of your life.

Follow the 50/30/20 rule

Financial experts recommend the 50/30/20 guideline as a basic financial strategy, especially for young professionals. You can also use the new 50 30 20 budget calculator to help create your new budget.

The rule says that you should allocate a 50%, 30%, and 20% of your income to the following categories:

Essentials: 50%
-Rent/Mortgage
-Utilities
-Debt payments
-Bills
-Groceries
Personal Expenses: 30%
-Entertainment
-Dining out
-Date night
-Shopping for non-essential items
Savings: 20%
–Emergency savings
-Retirement account
-Travel fund
–Rainy day fund

50/30/20 Calculator

50/30/20 Budget Calculator

Here’s how much you have for:

Essentials$0.00

Wants$0.00

Savings$0.00

Reset

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Consider a zero-based budget

With the zero-based budget technique, each month begins and ends with zero dollars. When you build out your zero-based budget, every dollar has a purpose. Let’s take a look at a sample budget using the zero-based method. If you make $3,500 every month, attribute each dollar to an expense. You might put $1,750 toward living expenses, $700 toward paying off debt, and $1,050 toward personal expenses like going to the movies or saving for vacation. At the end of the month, your balance is zero, because every dollar is accounted for.

Keep in mind, the zero-base doesn’t mean you’re spending every dollar that you earn, but rather, that each one is allocated to a different category—savings account included!

Selecting a Budgeting Tool That Suits Your Lifestyle

As we mentioned before, the one-size-fits-all methodology is a no-go when it comes to personal budgeting. Your financial situation is completely unique to you whether we’re talking about your income, expenses, or your financial goals, so it only makes sense to tailor your budgeting strategy to your individual preferences.

Here are a few tips to help you find a budgeting tool that makes sense for you:

Read reviews, or ask around: Although money can be considered a taboo topic, that doesn’t mean you need to tip-toe around budgeting techniques in your relationship or with your friends. You probably trust their opinions more than anyone else, after all. See which tools they use and ask what they like and don’t like about their current budgeting method.
Test it out: Before buying into any paid budgeting subscriptions, give the free trial a go. This way, you’ll be able to familiarize yourself with the features and decide if it’s a tool you’d continue using.
Consider compatibility: If you’d like to automate your expense tracking, make sure that the budgeting tool you want to use can be integrated with your bank and credit card issuers.
Use a template or tool tailored to your needs: Depending on your financial circumstances, you may need a simple budget, or one that’s specific to your income and expenses. Or perhaps you’ll need additional functionality like investment capability or the ability to make peer-to-peer transactions. According to a recent survey, 55% of Americans use a full-service banking app. As you select a budgeting tool, consider how you’ll use it and how the tool fits into your lifestyle and financial goals. Our budget templates include the following categories:

Common Budgeting Obstacles and Mistakes

Before you set sail on your journey towards better budgeting, it’s time to talk about some of the obstacles you may encounter on your way. Like most things in life (or the sea in this case), budgeting isn’t always clear-cut—there can be aspects that are difficult or ambiguous. Factoring in random, one-time expenses or calculating a part-time gig can complicate your budget, but trust us, your voyage can (and must) continue! Here are a few tips to ensure you have the most accurate budget—no matter the circumstance.

1. Estimating irregular income

If you’re a freelancer or work a side hustle, you likely have an irregular income that can be hard to predict. In these cases, it’s best to estimate a conservative (low) amount, so you don’t overspend. Review the past 3-6 months of income and watch for any patterns. Can you find an approximate hourly rate or weekly rate for what you bring in? If you’re new to a job, like being a waitress, ask a coworker how much they typically make in tips to help you forecast your monthly tip outs. Above all, do your best to create an income estimate—knowing you can tweak it along the way.

2. Paying for emergency expenses

Unfortunately, accidents and unexpected bills happen to everyone. From car troubles to job loss and medical expenses, emergencies can be expensive and having a backup emergency budget can help cut down expenses. An unexpected bill can throw off our budget, and set you back. If an incident does occur, try to factor the expense into your budget while paying your other bills. For instance, you may want to cut back on dining out for the month, or pick up an extra shift to help you cover a bill. If you can, build an emergency fund into your budget to safeguard your finances against future unexpected situations.

3. Forgetting one-time expenses

Items like annual memberships, vacations, and gifts for family and friends are often forgotten when creating budgets. If you can, set aside a small amount of cash every month for these extra expenses. You can estimate the expected cost for the year and account for them in your monthly budget. For example, if you typically spend $300 on Christmas gifts, set aside an extra $25 every month to account for these added expenditures. By the time December comes, you’ll have the cash available to spend on gifts.

Key Takeaways: Budgeting 101

Creating a budget is really as simple as following these five steps:
- Calculating your take-home pay
- Estimating your expenses
- Setting savings and debt payoff goals
- Recording your spending
- Tracking your progress
To find the right budgeting method and tools for you, consider compatibility, ask around, and try out different options
Avoid budgeting pitfalls by preparing for unexpected circumstances and tailoring your budgeting strategy as needed

Sign up for Mint to help you stick to your budget and goals

Let the Mint app do the heavy lifting for you. It can calculate your income, total your spending by category, and help you conquer your savings goals. Tracking expenses with the app is simple and accessible—no matter where you are.

Learn more about security

Source: mint.intuit.com

October 29, 2021

How to Balance Saving for Retirement and Your Kidsâ Education

Let’s face it: Setting aside adequate funding for the future is a long, hard slog. Particularly for younger families who are early- to mid-career and have a lot of competing financial items to cover. Between raising young kids, paying mortgage or rent, and the countless other items that come with daily living, it can be stressful and difficult to see how everything is ever going to come together. Let alone saving for future goals – such as a home, kids’ education funds and the big one: retirement.

Truth is, we’re in an era where these pressures continue to increase. Education expenses seem to be heading to the moon. And the concept of an employer paying a retirement pension has been dwindling for decades. The burden has shifted to employees to fund their own retirements.

If you’re in this boat, consider these strategies that may help. I’ll start with saving for retirement.

The first decade of retirement savings builds your foundation

Let’s tackle the question of balancing saving for retirement and education with what we know today. Unlike your children’s education, your retirement can’t be financed with a loan. The thing you can control about saving for retirement is to start early in your life and remain disciplined in putting something away for the long term. I often advise people who are starting out in their careers, and it’s key for them to understand that the first 10 years of savings generally won’t feel like things are growing fast enough. What you’re essentially doing in that period is building a foundation: A meaningful amount of money that down the road should start to compound at a faster rate.

The more dollars you have in the foundation, the more they can generate with even slight increases in investment returns. Think of it this way – making 10% on $1,000 produces $100 of investment returns. At the end of the day, $100 may not last too long in retirement. However, if you can build a savings balance to $100,000 and get 10% returns, that amounts to $10,000. Now start to replicate that over time, and eventually those return dollars start to compound at a higher rate than your annual contributions.

The graphic below provides a good example of how compounding works. Compare the “Consistent” example with the “Late” results. Those 10 years of starting early are highly advantageous in terms of compounding.

A line graph shows how four different people fare whether contributing $200 per month consistently from age 25-65 (ending balance of $369,900), waiting to start contributing at age 35-65 (ending balance of $192,000) or contributing only from ages 25-35 (e

The gap between Consistent and Late carries a powerful message: Use those early career years to start putting money away to build up your foundation. Decide on an amount you can afford – and just start and stick to the plan. As your pay increases, you should reassess to determine if you can increase your contributions.

Contemporary studies indicate a need to save 15% of your income annually to obtain enough savings over a career to replace your salary in retirement. This is a high hurdle, but starting early and building your way up to the target over time is the important part.

This saving and investing business is a slow, long-term process. But it’s a lot more effective than waiting until later in life when you won’t have as much time to allow your money to grow before you need to draw from it.

Education savings should play second fiddle

As I mentioned above, retirement isn’t something you can finance or borrow money to fund. From my experience, I believe retirement should take a higher priority over saving for your children’s college. I’m not saying you should ignore that future expense – but don’t put it ahead of creating a nest egg to support you when you can no longer work or choose not to. Ultimately, education can be financed if you don’t have the means to fully save for it as well as to cover all of life’s expenses and put away money for retirement.

Right now, we’re seeing massive student loans burdening young adults leaving college, and it just seems like this trend isn’t getting any better. I question how tuitions can inflate the way they have – especially over the last 20 years. Something will have to give eventually, but don’t bank on this while planning for your future!

As with retirement, if you can start saving for education by putting aside something early and often, you likely will see the benefit after building the foundation. It takes time, and it is a marathon. The goal would be to determine an amount you can save from your income, focus on getting a larger portion into retirement savings, and then allocate some to education. You can also make use of bonuses and gifts to save into education as they come along.

I recognize that saving for both retirement and education can seem next to impossible. Most families face this same problem. However, starting to do something about it early in your career can lay a solid groundwork, which will ultimately provide greater compounding – along with significantly greater financial security in the decades to come.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Chair of Investment Committee/Senior Wealth Adviser, Halbert Hargrove

Brian Spinelli is based in Halbert Hargrove’s Orange County and Long Beach offices. His responsibilities encompass running the firm’s investment committee as well as advising individuals and institutions on their investment and wealth advisory needs. Brian was named to HH’s management team in 2012. He earned his Bachelor of Arts in Business Administration – Finance from Loyola Marymount University in 2002 and his MBA from LMU in 2005. He is a CERTIFIED FINANCIAL PLANNER™ professional.

Source: kiplinger.com

October 27, 2021

Thoughts Before Funding a 529 College Savings Plan

College costs have outpaced inflation. Looking back at the last decade, the 10-year historical rate of increase has been approximately 5% per year, according to The College Board. Luckily, there’s a tax-advantaged way to save for these growing college expenses: the 529 college savings plan.

529 basics

When it comes to saving for college, opening a regular savings account/custodial account for your child is an option, but you’d miss out on the benefits of a 529 plan, such as the tax-free growth on earnings if the funds are used for qualified college expenses. Deposits to a 529 plan up to $15,000 per individual per year ($30,000 for married couples filing jointly) will qualify for the annual gift tax exclusion (for 2021). You can also front-load your investment in a 529 plan with $75,000 ($150,000 if joint with your spouse) and use this toward your gift tax exemption for five years, providing there have been no other gifts to that child. This is something that is not possible for a regular savings/custodial account for your child (you would only be able to gift $30K jointly). By adding a large amount up front, you allow the lump sum to grow over a longer time horizon vs. making smaller contributions over time. Contributions to a 529 plan do not have to be reported on your federal tax return.

Contributions to a 529 plan are not tax deductible (although some states do offer tax benefits), but the earnings grow tax free and are not taxed if used to pay for education. Another advantage compared to a custodial account is control; the named beneficiary has no legal rights to the funds, so you can ensure the money will be used for education.

Also on the plus side, a 529 account owned by someone other than the parent (such as a grandparent) is not considered an asset for financial aid purposes. In addition, the value of a 529 account is removed from your taxable estate, yet you retain full control over the account.

How to choose a 529 plan?

Research the underlying expenses of the mutual funds and review the investment options available compared to other plans. The age-based models may be the easiest to manage, as the plan shifts to more conservative investments as the student gets closer to college age. You can choose any state plan no matter where you live, but if you reside in a state that provides tax breaks for using your state plan, you would likely want to start there. For example, New York residents get tax benefits for using their state plan. Keep in mind that you have the ability to move your 529 to another provider, but only one rollover is permitted per 12-month period.

How much to fund?

The amount to contribute to a 529 plan depends on several assumptions, such as whether you expect your child will attend a public college or a private college, the returns during the investment time horizon, and future college inflation. Funding goals vary widely depending on what you would like to achieve and the assumptions involved — and of course there is no right answer.

If the beneficiary does not go to college, you can transfer the 529 plan to a sibling in the future or to another family member, such as a cousin or grandchild. If you don’t have any eligible family members, the worst-case scenario is that you would have to pay tax and a 10% penalty on the earnings to take the money out for another purpose. Withdrawals from a 529 plan that are not used for the beneficiary’s qualified education expenses are taxed and penalized (subject to a 10% federal penalty and taxed at the income tax rate of the person who receives the withdrawal). If the beneficiary gets a scholarship, then the penalty is waived.

Considerations if you have more than one child

If you have several children, it may make sense to fully fund the first plan for the oldest child, and if the funds are not used, they can be transferred to the next child in line. You probably want to avoid fully funding all the plans in the event one child does not end up going to college, gets a scholarship, or starts a business. Some schools and some trade schools/programs do not qualify for 529 funds (for example, if a grandchild wants to go to a specific acting or cooking school). You can find out if your school qualifies by using this link: http://www.savingforcollege.com/eligible_institutions/.

Avoiding tax penalties on 529 Plan funds – not all expenses are qualified

Avoid overfunding the 529 if possible, as “qualified education expenses” do not cover all expenses related to college. Qualified expenses include:

Tuition and fees.
On-campus room and board.
Books and supplies.
Computers and related equipment.

On the other hand, several costs related to college aren’t considered qualified expenses. These costs can easily add up, so it may make sense to save outside of a 529 plan to help cover them. Funds from a 529 plan cannot be used for:

The purchase of a car, fuel costs or public transportation costs to and from school.
Any insurance (car, health etc.) cannot be paid with 529 funds either.
If your child is a member of a school club or involved in a sports activity, any related fees and costs are also not qualified.
It might seem intuitive that, if you have a student loan, you can use funds from a 529 to pay off the balance, but this is also not permitted.

If your child is planning to live off-campus, in housing not owned or operated by the college, you are unable to claim expenses in excess of the school’s estimates for room and board for attendance. It is important to confirm room and board costs with the school’s financial aid office, in advance, so you know what to expect. Also, keep in mind that, in order for room and board to qualify, your child must be enrolled half time or more.

Finally, if your child is studying abroad, check with the school to find out if the study abroad program qualifies for 529 funds.

If you inadvertently use funds for the wrong expenses, you will end up being taxed on the earnings, as well as face a 10% penalty on that amount. Although 529 plan accounting tends to operate on the honor system, as you have to track your own expenses, using funds for the wrong items could have consequences in the event of an IRS audit.

Paying for college is a large expense for many families. 529 plans are a tax-advantaged way to save for college, but they come with some complex rules and restrictions — so understanding how these accounts operate before investing could save you from incurring unexpected tax penalties in the future.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Senior Financial Adviser, Evensky & Katz/Foldes Financial Wealth Management

Roxanne Alexander is a senior financial adviser with Evensky & Katz/Foldes Financial handling client analysis on investments, insurance, annuities, college planning and developing investment policies. Prior to this, she was a senior vice president at Evensky & Katz working with both individual and institutional clients. She has a bachelor’s in accounting and business management from the University of the West Indies, she received an MBA at the University of Miami in finance and investments.

Source: kiplinger.com

September 26, 2021

Make the Final Months of Student Loan Relief Really Pay Off

Four months and counting: That’s how long those with federal student loans have until all the pandemic-related reprieves on payments officially come to an end on Jan. 31, 2022. Until then, take advantage of all the strategies available to you to put yourself in the best possible financial position.

The coronavirus relief bill, known as the CARES Act, was signed into law in March of 2020. It suspended loan payments, set interest rates at 0% and stopped collections on defaulted student loans. Its protections were extended multiple times, with the last extension coming on Aug. 6. As a result, for nearly two years, federal student loan borrowers were not required to make payments and saw no interest accrue during the relief period.

No action is required by qualified borrowers, as the loan payment suspension or forbearance will automatically continue through the end of January. Does that mean that borrowers must resume paying on Feb. 1? Not necessarily.

Loan servicers should be contacting borrowers before the extension ends to confirm when to resume payments. However, if you have student loans and you don’t hear anything from your lender, you should contact them yourself. Don’t assume that if you are not contacted that you aren’t responsible for resuming payments, as this could put you at risk of accumulating late fees and perhaps even defaulting on your loans. Remember, it’s the borrower’s responsibility to pay their loans on time, whether or not they receive communication from their lender.

In the meantime, use your final months of loan forbearance wisely. Here are some ideas on how best to move forward until payments must restart:

What You Can Do with the Extra Money – 5 Tips

1. Increase Your Savings

If you don’t have an emergency fund or have depleted it during the pandemic, consider using the extra money normally dedicated to your student loan payments to rebuild it. The general rule of thumb is to save somewhere between three to six months’ worth of take-home pay. However, in light of the pandemic, some may want to increase that to six to nine months or even more. For example, if you’re self-employed, the sole breadwinner of your household, or don’t have job stability or security, you may want to aim for a savings of up to one year’s worth of your monthly take-home pay.

2. Go on a Debt Diet

Consider paying down high-interest rate debt, such as credit cards, before student loan payments resume. This strategy is known as the “Debt Avalanche Method.” Another strategy is to begin clearing off the debts with the smallest balance first, known as the “Debt Snowball Method.” Whichever strategy you use, aim to pay off as much as you can, because doing so can benefit you greatly in the long run.

3. Invest in Your Future

If you have ample emergency savings and have paid off high-interest rate debt, consider investing the additional money until repayments must resume. Begin with ramping up your retirement contributions, and set automatic contributions if you haven’t already. If you have, consider increasing your contributions by 2% (or more) of your income, and set it up so that it will automatically increase the same amount the following year. If your retirement savings are on track, then consider investing for other goals that you may have, such as buying a home, starting a business or simply building your wealth.

For example, you can begin by opening a brokerage account and start with a recurring deposit of $50 (or more) a month. Investing the extra money helps it grow over time, thanks to the magic of compounding interest, which potentially enables you to earn money on top of the money you earn.

4. Factor Your New Loan Payments into Your Budget

Review your budget and student loan repayment plan. Many of you have experienced quite a few changes during the pandemic, such as a job loss or a reduction (or increase) in income. So, now is a good time to reassess your repayment strategy, meaning making sure you can afford the payments when they resume, and if not, determining what repayment options may be available to you. A financial adviser, certified student loan expert or your student loan servicer can provide assistance and direction.

5. Continue Making Student Loan Payments to Reduce Your Principal

Whether or not you should continue paying on your student loans depends on a number of factors. If you are likely to qualify for Public Student Loan Forgiveness (PSLF) in the future, you will not benefit from paying on your loans during the suspension. However, if you have private loans or other debts, such as high-interest rate debt mentioned above, you may want to prioritize paying off these first. On the other hand, if you are unlikely to qualify for PSLF, then you first need to determine if you have unpaid accrued interest and how much. If you have accrued interest, any payments made will go toward paying that off first, before they go toward your principal.

If you don’t have accrued interest and you’ve implemented all of the above recommendations (emergency savings, paying off debt, investing), then you may want to consider using the extra money to aggressively pay down your principal while there is a zero percent interest rate.

Forbearance Advice for New or Current College Students

What impact does the suspended loan payments have on new or continuing college students? First, let’s begin by explaining the two types of loans that are provided by the federal government and are strictly for students – the Direct Subsidized Loan and the Direct Unsubsidized Loan. A key difference with the subsidized loan is that the government pays the interest while the student is in school and during the six-month grace and deferment periods. Eligibility for this loan is based on financial need.

Conversely, with unsubsidized loans, the student is responsible for all of the interest that accrues; however, they can defer payment until six months after graduation. Also, unlike the subsidized loans, eligibility is not based on financial need. There is a yearly maximum amount that students could be offered. For college freshman, the maximum is $5,500 if they were awarded both the Direct Subsidized and Unsubsidized loans. Over a five-year period, students can borrow a maximum of $31,000.

Pre-pandemic, both loans were typically deferred until graduation. But remember, interest was still accruing on unsubsidized loans. Now, with the current payment suspension, the interest accrual on the unsubsidized loan is halted and therefore treated like the subsidized loan. This is, therefore, beneficial for current college students and those starting school this fall.

Thus, here’s a thought for parents who under normal circumstances wouldn’t take out loans: They may now want to consider taking them, at least temporarily. Why? They can take advantage of the forbearance by keeping funds that they plan to use toward college expenses in an interest-bearing account. When the moratorium on student loan payments end, they could pay off the loan and keep the interest.

Advice for Incoming and Future College Students

What does all this mean for students entering college in 2022 and beyond? In April, President Biden unveiled his $1.8 trillion “American Families Plan,” and while it did not include loan forgiveness, it would provide other essential forms of support to families in need, if the legislation is passed. One form of support entails providing free tuition for community college students. Given that many students are opting to go to a community college due to the rising cost of higher education and the uncertainties of the pandemic, such a benefit can make college more affordable for many families. The relief package would also increase the maximum Federal Pell Grant by $1,400 (increasing the average Pell Grant by roughly $900), which would be beneficial for low and moderate-income families.

However, for higher income families, these benefits won’t reduce the burden of paying for college, which makes planning ahead all the more important. As the cost of a college education continues to rise, it likely means that student loan debt will too. The average student graduates from college with nearly $40,000 in student loan debt. So, this means that no matter what the federal government decides to do, parents need to be in the driver’s seat. They MUST lead the college selection process (with the child as co-pilot) because they have the most to lose. What do I mean by “lose”? It means picking the wrong school, overpaying or underestimating total costs, including how many years it actually takes to graduate and ultimately earn the degree. As a result, many parents resort to tapping into their home equity, taking out large second mortgages and/or diverting retirement funds to pay for college and therefore have to work longer than they had hoped or planned.

To avoid being in this situation, financial planners, particularly those who specialize in college planning, can provide guidance and direction in this effort too. Independent Educational Consultants may also be a great resource.

Finally, What about Those Who Currently Have Private Student Loans?

Unfortunately, the CARES Act extension until Jan. 31, 2022, only applies to federal student loans, such as Federal Student Subsidized Loans, Federal Student Unsubsidized Loans, Federal Parent PLUS Loans and Graduate PLUS Loans. However, many private lenders are offering relief similar to the temporary forbearance, but interest will likely still accrue. Borrowers with private loans can start by checking their servicer’s website for information on COVID-19 relief or contact them to inquire about forbearance or rate reduction programs.

More Updates are Expected

Stay tuned. The Federal Student Aid site provides the latest updates about the coronavirus student loan relief and its impact on students, borrowers and parents. For more information on student loan forgiveness legislation, visit the U.S. Department of Education’s website.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Financial Adviser, Urban Wealth Management

Derenda King is a CERTIFIED FINANCIAL PLANNER™ professional, Certified Student Loan Professional (CSLP®) and financial adviser with Urban Wealth Management. She is also the owner of Collegiate Financial Coach, LLC, which provides financial coaching to families with college-bound students who need assistance with developing a college funding plan and to individuals seeking strategies for repaying their student loan debt. Prior to becoming an adviser, Derenda worked in higher education, and she is still an educator at heart. She provides comprehensive, holistic financial planning services, with an added focus on late-stage college planning, and is passionate about educating, empowering and equipping individuals with the knowledge to make more informed decisions about their money.

Source: kiplinger.com

August 24, 2021

Mint Money Audit: 34 and Living Paycheck to Paycheck

Each month I’ll be helping a Mint user analyze their financials in an effort to offer some strategies and ideas for saving better, squashing debt and in, some cases, earning more. [If you’d like to be considered, just email me [email protected]]

This week we begin with Rebecca [name has been changed to assure privacy] from St. Louis, MO, one of Mint’s original “beta” users since 2006. The 34 year-old government worker says she loves the money tool because it helps keeps her organized and on track.

Still, she’s struggling to boost savings, repay debt and raise her income. She’s living paycheck-to-paycheck and wants to get ahead. [As a homeowner, she’d also like to tackle a few home renovation projects.]

A little more about Rebecca and her Mint profile:

Annual salary: $65,000 (before taxes, health insurance & retirement contributions)
Monthly Expenses: $2,200 a month.
Biggest Monthly Expense Categories:
- Mortgage $986
- Food, Gas, Laundry, Entertainment, Misc.: $760
- Condo Fees: $307
- Student Loans: $22,900 (monthly payment is $285)
- Credit Card Debt: $10,900 (monthly minimum payments total $200)

In our conversation I had the chance to learn a little more about Rebecca’s financial profile and the moves she’s willing to make to create some much-needed breathing room in her budget.

Here are a few of my recommendations:

Cut the Cord on Cable

Of all her expense, Rebecca and I discussed that cable is the least desirable and least needed. [I cut the cord back in August and use mainly Netflix and my Apple TV to access my favorite shows] Her cable bill amounts to $60 a month. Slash it and she can save $720 a year.

Save on the Go

Rebecca is conscious about saving. She uses Digit, a new mobile app that saves nominal amounts for you every few days or once a week. It bases its savings decisions on your flow of income and expenses. Since last fall, Rebecca has saved over $400 using Digit. I recommended she stick with it, since it’s totally painless and can serve as a nice “slush” fund for her when she wants to splurge on herself once in a while.

Take on a Side Gig

Because has a government position, Rebecca’s pay is very structured and it’s not likely she can receive a raise just for asking. She does anticipate a 1.6% raise this year, but I thought that wasn’t really enough to move the needle as far as saving more and squashing debt. (I mean, that’s only a tad better than the year-over-year rise in inflation!) My recommendation: Start looking at private sector jobs. Rebecca has a Master’s degree and could make probably twice what she’s earning now working for a company – or for herself! It’s something she’s considered and will be more proactive about it in 2017.

Meanwhile, how about a side gig? Rebecca works from home some days and has a nice two-bedroom house. While she wasn’t keen on my idea of renting her second bedroom out once in a while via sites like AirBnB, she did think she could have fun dog-sitting once or twice a week. We decided this might be an easy way to not only earn extra income. It can also, depending on the dog, serve as a nice stress relief!

At Rover.com and DogVacay.com, for example, sitters and dog walkers that take on gigs on a regular basis can earn $1,000 or more per month. Per night, pay can range and vary slightly depending on the neighborhood, but you can earn between $25 and $35 per night.

If Rebecca dog-sits twice a week, she could earn an extra $200 to $300 a month. In a year, she’ll have up to $3,600 in her pocket.

Maximize Your Tax Refund

Rebecca says her tax refund – combining Federal, State and Local tax refunds – will be around $4,000. My suggestion was to place most of that or $3,000 towards her credit card debt and save $1,000 in her bank account.

A tax refund can be a huge help in getting you to your financial goals faster. If you have credit card debt, it’s wise to first use the refund to pay that down. And if you lack emergency savings, use some of the IRS windfall to bolster your rainy day account.

Transfer Debt to a 0% Balance Transfer Card

Rebecca pays a little more than the minimum on each of her two credit cards. Together, her cards average an interest rate of about 10%. On a nearly $11,000 balance, she’ll be paying down this debt for the next 6 years.

But if she commits to all of the above and applies to her card debt:

Existing $200 she is already contributing to
Savings from cable ($60)
Earnings from dog sitting ($300)
A majority or $3,000 of her tax refund

AND transfers her credit card debt to a 0% balance transfer card then she could be out of debt in about 15 months or so, by the time some balance transfer cards end their 0% introductory rate. [Her credit score is well in the 800s so she shouldn’t have a hard time qualifying for a great card.[

Audit Conclusion: By transferring her credit card debt to a 0% balance transfer card, cutting cable and taking on a small side gig, Rebecca will be able to be credit card debt free in a little over a year – as opposed to six! After that, my recommendation is to PRETEND the debt still exists and allocate a minimum of $500 a month towards emergency savings. This time next year, I hope she’ll also have found a new job that pays her more for her skills and education. A greater income will mean she can finally work on some of her pet projects around the house!

Have a question for Farnoosh? You can submit your questions via Twitter @Farnoosh, Facebook or email at [email protected].

Farnoosh Torabi is America’s leading personal finance authority hooked on helping Americans live their richest, happiest lives. From her early days reporting for Money Magazine to now hosting a primetime series on CNBC and writing monthly for O, The Oprah Magazine, she’s become our favorite go-to money expert and friend.

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Source: mint.intuit.com

May 11, 2021

Investing in a College Town Rental Market: Ann Arbor, Michigan

College towns are attractive markets for investors in rental properties for several reasons. Students and faculty create large and dependable markets of tenants. Local economies dominated by academic institutions are remarkably stable compared to those based on manufacturing or agriculture. Larger universities create hundreds of non-academic jobs in research centers, medical facilities, and new companies spun off by technologies developed locally.

Ann Arbor, Michigan, home to the main campus of the University of Michigan, is an excellent example of a campus-based economy that is much larger than its facility and student body. One out of three local jobs are in educational service, and an additional one out of ten are in technical, professional and scientific services. At $39,235, Ann Arbor’s average per capita income and its median family income of $102,615 are 20% to 30% higher than national averages.

WalletHub ranked Ann Arbor, the nation’s fifth-best college town and the best small city college town in 2020 based on academic, social, and economic opportunities for students. It also ranked Ann Arbor, the nation’s “most educated city in 2020,” outranking San Jose, California, and Washington, D.C. It also placed first in educational attainment and quality of education and attainment gap.

Read: 5 Reasons Why You Should Still Buy an Investment Property

college university student leaving library

Affordability is Under Fire

Popularity can have a downside, and Ann Arbor is experiencing the price of success in rising housing costs and decreasing affordability, especially in Washtenaw County as a whole.

As of February 2020, the average monthly rent in Ann Arbor was $1,580 for an 882-square-foot apartment, a 3% increase over 2019, higher than the national median for a comparable apartment ($1,468) and considerably higher than nearby Detroit ($1,069) or East Lansing ($1,294), home of Michigan State University. Half of Ann Arbor tenants spend 30% or more of their household income on rent. HUD defines cost-burdened families as those “who pay more than 30% of their income for housing” and “may have difficulty affording necessities such as food, clothing, transportation, and medical care.”

“Ann Arbor – and its central driver, the University of Michigan – is a magnet for highly educated households with upward mobility and significant disposable income. With some exceptions, Ypsilanti (City and Township) and their challenge of being overloaded by a disproportionate number of at-risk households and homes with negative equity – is where the most affordable options exist,” stated a 2015 Washtenaw County housing study.

“Ann Arbor will become more costly, and less affordable, especially to non-student renters in the short run and eventually, to aspiring buyers as well. The driver for higher costs is a combination of high livability and quality of life, great public schools, resulting in sustained demand by households with discretionary income, and resulting expectations of stable and continually rising property values,” the study concluded.

Read: Investing in a College Town Rental Property: Charlottesville, VA

The Ann Arbor Rental Market is Vast and Profitable

In many ways, Ann Arbor is a great rental market. The massive student body drives demand. About 70% of the University of Michigan’s 46,000 students live off-campus and the current cap rate for Washtenaw County apartment buildings is a respectable 7.6%. (The capitalization rate is the ratio of rentals’ net operating income to property value. Low cap rates imply lower risk, and higher CAP rates indicate higher risk.)

Living off-campus is so popular; the university maintains web pages listing rentals and providing advice and information for off-campus renters. This summer initiated a “virtual housing fair” to help students find rentals for the 2020-2021 school year.

group of young college students hanging out at home

Homes.com lists 1,235 properties in Ann Arbor, with a median home value of $355,600, about 17% above the national median of $304,100 in July. Of the total homes in Ann Arbor listed on Homes.com, 60% are for sale, and 34% are rentals.

Read: What to Know Before You Rent to College Students

Though several new high-rise apartment buildings recently opened and more are under construction, single-family rentals still dominate the market. Homes.com lists more than 200 single family homes for rent in Ann Arbor. Smaller rental households are a result of the above-average presence of single-family rentals relative to apartments. The average household size for Ann Arbor rentals is 2.2 people, compared to 2.3 for Michigan and 2.5 for the nation as a whole.

COVID-19 and Ann Arbor, Michigan

COVID-19 delayed the University of Michigan’s plans for the fall semester but did not cancel fall apartment rentals. The university’s plans include both in-person and remote classes, a new academic calendar, and the elimination of breaks and changes centered around preventing the spread of the coronavirus.

Despite the pandemic, Ann Arbor is still one of the best college town markets in the nation. As in most markets, acquisition is a challenge. Property prices in Ann Arbor are rising, and the smaller, less expensive homes that make ideal single-family rentals are few and far between. Otherwise, conditions are good for single-family rental owners and will improve as the nation returns to health.

Website | See more posts by this author

Steve Cook is the editor of the Down Payment Report and provides public relations consulting services to leading companies and non-profits in residential real estate and housing finance. He has been vice president of public affairs for the National Association of Realtors, senior vice president of Edelman Worldwide and press secretary to two members of Congress.

Source: homes.com

April 12, 2021

How to Pay Off $130,000 in Parent PLUS Loans for Just $33,000

Millennials are not the only ones saddled with the obligation to pay back massive amounts of student loans. Many parents take out loans in their names to help their children pay for college, and in many cases, these loans are getting in their way of achieving their goals, like retiring.

Under the federal student loan system, parents can take out Parent PLUS loans for their dependent undergraduate students. One of the major differences between Parent PLUS loans and the loans that the students take out is that there are fewer repayment options available for Parent PLUS borrowers. Parent PLUS loans are only eligible for the Standard Repayment Plan, the Graduated Repayment Plan and the Extended Repayment Plan.

There are other strategies for managing Parent PLUS debt, however. When consolidated into a Direct Consolidation Loan, Parent PLUS loans can become eligible for the Income-Contingent Repayment (ICR) Plan, in which borrowers pay 20% of their discretionary income for up to 25 years.

Currently, ICR is the only income-driven repayment plan that consolidated loans repaying Parent PLUS loans are eligible for. However, when a parent borrower consolidates two Direct Consolidation Loans together, the parent can potentially qualify for an even better repayment plan and further reduce their monthly payments.

Nate, the high school math teacher

Let’s take a look at Nate, age 55, as an example to see how a parent can manage Parent PLUS loans and still retire as hoped.

Nate is a public school teacher who makes $60,000 a year and just got remarried to Nancy, who is also a teacher. Nate took out $130,000 of Direct Parent PLUS loans with an average interest rate of 6% to help Jack and Jill, his two kids from a previous marriage, attend their dream colleges. Nate does not want Nancy to be responsible for these loans if anything happens to him, and he is also worried that he would not be able to retire in 10 years as he had planned!

If Nate tried to pay off his entire loan balance in 10 years under the federal standard repayment plan, his monthly payment would be $1,443. Even if he refinanced privately at today’s historically low rates, his payments would still be around $1,200, which is too much for Nate to handle every month. Also, since Nate’s federal loans are in his name only, they could be discharged if Nate dies or gets permanently disabled. Therefore, it is a good idea to keep these loans in the federal system so that Nancy would not be responsible for them.

In a case like this, when it is difficult for a federal borrower to afford monthly payments on a standard repayment plan, it’s a good idea to see if loan forgiveness using one of the Income-Driven Repayment plans is an option. In Nate’s case, his Parent PLUS loans can become eligible for the Income-Contingent Repayment (ICR) plan if he consolidates them into one or more Direct Consolidation Loans. If Nate enrolls in ICR, he would be required to pay 20% of his discretionary income, or $709 a month. Compared to the standard 10-year plan, Nate can cut his monthly burden in half by consolidating and enrolling in ICR!

But that’s not all …

Double Consolidation

For Nate, there is another strategy worth pursuing called a double consolidation. This strategy takes at least three consolidations over several months and works in the following way:

Let’s say that Nate has 16 federal loans (one for each semester of Jack and Jill’s respective colleges). If Nate consolidates eight of his loans, he ends up with a Direct Consolidation Loan #1. If he consolidates his eight remaining loans, he ends up with Direct Consolidation Loan #2. When he consolidates the Direct Consolidation Loans #1 and #2, he ends up with a single Direct Consolidation Loan #3.

Since Direct Consolidation Loan #3 repays Direct Consolidation Loans #1 and 2, it is no longer subject to the rule restricting consolidated loans repaying Parent PLUS loans to only be eligible for ICR. Direct Consolidation Loan #3 could be eligible for some other Income-Driven Repayment plans, including IBR, PAYE or REPAYE, in which Nate would pay 10% or 15% of his discretionary income, rather than 20%.

Reducing Nate’s monthly payments

For example, if Nate qualifies for PAYE and he and Nancy file their taxes using the Married Filing Separately (MFS) status, only Nate’s $60,000 income is used to calculate his monthly payment. His monthly payment now would be reduced to $282. If he had chosen REPAYE, he would have to include Nancy’s annual income of $60,000 for the monthly payment calculation after marriage — regardless of how they file their taxes — so his payment would have been $782.

Double consolidation can be quite an arduous process, but Nate decides to do it to reduce his monthly payment from $1,443 down to $282.

How Parent PLUS borrowers can qualify for forgiveness

Since Nate is a public school teacher, he would qualify for Public Service Loan Forgiveness (PSLF), and after making 120 qualifying payments, he would get his remaining loan balance forgiven tax-free.

Since Nate is pursuing forgiveness, there is one more important thing he can do to further reduce his monthly payments. Nate can contribute more to his employer’s retirement plan. If Nate contributed $500 a month into his 403(b) plan, the amount of taxable annual income used to calculate his monthly payment is reduced, which further reduces his monthly payments to $232.

Summarizing Nate’s options in dollars and cents

With the standard 10-year repayment plan, Nate would have to pay $1,443.26 every month for 10 years, for a total of $173,191.
With a consolidation, enrolling in ICR, filing taxes using the Married Filing Separately status and Public Service Loan Forgiveness, he would start with $709 monthly payments and pay a total of around $99,000 in 10 years.*
With double consolidation, enrolling in PAYE, filing taxes using the Married Filing Separately status and Public Service Loan Forgiveness, his monthly payment starts at $282, and his total for 10 years would be around $40,000.
For maximum savings: With double consolidation, enrolling in PAYE, filing taxes using the Married Filing Separately status, Public Service Loan Forgiveness and making $500 monthly contributions to his employer retirement account for 10 years, Nate’s monthly payment starts at $232, and his total payment would be around $32,500. He would have contributed $60,000 to his 403(b) account in 10 years, which could have grown to about $86,000 with a 7% annual return. Comparing this option with the first option, we can project that Nate pays about $140,000 less in total, plus he could potentially grow his retirement savings by about $86,000.

As you can see, there are options and strategies available for parent borrowers of federal student loans. Some of the concepts applied in these strategies may work for student loans held by the students themselves as well.

An important thing to remember if you are an older borrower of federal student loans is that paying back the entire loan balance might not be the only option you have. In particular, if you qualify for an Income-Driven Repayment plan and are close to retirement, you can kill two birds with one stone by contributing as much as you can to your retirement account. Also, since federal student loans are dischargeable at death, it can be a strategic move to minimize your payments as much as possible and get them discharged at your death.

Also, loan consolidation can be beneficial as it was in this example, but if you had made qualifying payments toward loan forgiveness prior to the consolidation, you would lose all of your progress you had made toward forgiveness!

As always, every situation is unique, so if you are not sure what to do with your student loans, contact a professional with expertise in student loans.

*Note: The projections in Options 2 through 4 assume that, among other factors such as Nate’s PSLF-qualifying employment status and family size staying the same, Nate’s income grows 3% annually, which increases his monthly payment amount each year. Individual circumstances can significantly change results.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Associate Planner, Insight Financial Strategists

Saki Kurose is a Certified Student Loan Professional (CSLP®) and a candidate for the CFP® certification. As an associate planner at Insight Financial Strategists, she enjoys helping clients through their financial challenges. Saki is particularly passionate about working with clients with student loans to find the best repayment strategy that aligns with their goals.

Source: kiplinger.com

April 6, 2021

College Students: Here are The Biggest Financial Mistakes You Need to Avoid

Slipping up while in college is basically a rite of passage. I made so many mistakes at Indiana University – many of which I would never admit publicly – that reminiscing on my college years comes with a heavy dose of embarrassment.

Thankfully, most mistakes made while at university are temporary. They may have short-term consequences, but drinking tickets and dorm infractions don’t tend to follow you into adult life. Financial mistakes, on the other hand, can be a little stickier.

College may seem like a safe little bubble, but money is still money. The cash you blow on parties and takeout doesn’t magically get reimbursed once you earn a diploma. Beyond that, the bad habits you develop during these crucial years can haunt you for decades to come. Trust me – I’ve been there.

Here are some of the biggest mistakes I made in college, and how you can avoid them.

Not Keeping a Budget

My forays into budgeting as a college student usually fizzled out. Like a New Year’s resolution, I’d make a firm commitment and then give up after a few weeks.

When I was a second-semester senior, I decided to finally buckle down and stick to a budget. Graduation was fast approaching and I knew I hadn’t been handling my money responsibly. It was time to get serious about budgeting before I entered the real world.

At first it was really hard. I wasn’t used to depriving myself, and seeing how much I was wasting on eating out and buying new clothes was a hard pill to swallow. It wasn’t until I started my first real job after college that I finally got the hang of budgeting – but it took a lot of trial and error.

If you’re interested in starting a budget, set up a Mint account and try tracking your expenses for a few weeks. Knowing where your money is going could be enough to change your behavior and establish better spending habits.

Not Making Loan Payments While in School

Did you know you can start paying off your student loans while you’re still in school? Yeah, I didn’t either.

When I was in college, I was certain I’d find a well-paying job after graduation. My loan balance was filed under the “worry about it later” category. It wasn’t until much later that I learned a hard truth – if I had paid just $50 a month, I could have saved hundreds in accrued interest.

Start paying back those loans as soon as possible, even if you can only afford ten bucks a month. You’ll still make a dent in the total balance, and the solid repayment habits you develop in college will pay dividends when life gets crazy after graduation.

Not Researching My Student Loans

I knew while applying to college that I’d have to subsidize my tuition with student loans. Before I made my decision, my parents told me to pick an affordable school where I wouldn’t need to borrow more money than I expected to earn in my first year out of school.

I wanted to be a journalist, and the average starting salary for a reporter was around $26,000 a year. I planned to take out $24,000 total, so I felt good borrowing slightly less than my future salary.

That was the only research I did into my student loans. I didn’t examine what my monthly payments would be or what it would be like to actually live on $30,000 a year while repaying my balance.

When I graduated, I got a job making $28,000 a year and was shocked when my first student loan payment came due. The minimum payment was $350 – or 20% of my take-home pay. After rent, utilities, groceries, gas and loans, I had little left over to save for retirement, travel or spend on hobbies.

If you’re not sure how much money you’ve borrowed, it’s time to take a closer look. I had so many friends in college who had no idea how much they were taking out. A few years ago, my alma mater, Indiana University, started sending out annual letters to current students showing them how much they’d pay every month. The result? Borrowing dropped 16%.

Talk to your financial aid office about your loans and see if you can take out less next year. If you’re using loans for living expenses, consider getting a part-time job to cover those instead. The less you borrow now, the less you’ll have to repay down the line.

Succumbing to Peer Pressure

When I was in high school, I heard a lot of lectures about peer pressure. Teachers told us not to do things just because the “cool kids” were doing it. They’d tell us to avoid alcohol and drugs and stick to our own values.

Unfortunately, no one explained how your peers could pressure you to spend more money. I can recount dozens of instances where I didn’t want to go out for dinner or go shopping, but gave in because my friends were doing it.

It’s so tempting to live the good life in college, putting off the stress of adult life until after graduation, but it’s also important to learn how to say no and think about long-term consequences. You can always strike a balance between having fun and staying on top of your responsibilities.

Not Applying for More Scholarships

Students usually assume the only time to apply for scholarships is before they start college. The thing is, there are plenty of scholarships available for current students. While I applied for a couple scholarships during my time in school, I didn’t take the applications seriously.

I told myself applying for scholarships was a waste of time. “What’s the point,” I’d think. “I probably won’t get it.”

That line of thinking probably cost me thousands of dollars, and it wasn’t until I was repaying my loans that I realized how much money I’d left on the table. If it seems like a hassle to apply for a $500 scholarship, consider how long it would take you to earn that amount in the real world.

Avoiding Credit

One of the biggest mistakes a college student can do is not track their credit history. A credit report is like a financial grade that lenders, landlords and sometimes even employers use to gauge your creditworthiness. If you have a low credit score or no credit, you probably won’t qualify for an apartment by yourself and will need a cosigner.

Thankfully, I didn’t have to worry too much about my credit while I was in college. My parents made me an authorized user on their credit cards, so while I was attending class and partying on the weekends my credit history was slowly growing.

If you don’t have a credit card right now, and you think your parents could be in a position to help, ask your parents if you can become an authorized user on their card or ask them to cosign on a student credit card.

Using a credit card to improve your credit history is simple if you have great self control. Pay a couple small bills with your card every month and then pay the balance in full once the monthly statement posts. Doing so regularly can give you a huge leg up after graduation.

But do remember a credit limit is not “free money” and should be looked at as a tool for your financial health. A credit card only has benefits if you pay it off in full every month, carrying over debt could be problematic for your financial future.

This blog post does not constitute, and should not be considered a substitute for legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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Source: mint.intuit.com

Intro to Budgeting: What is a Budget?

How to Create a Budget: 5 Actionable Steps

1. Calculate your monthly income after taxes

Calculating your monthly income as a salaried employee

Calculating your monthly income as an hourly employee

Subtract taxes and other deductions from your gross monthly income

2. Identify fixed and variable expenses

Fixed expenses

Variable expenses

How to factor expenses into your budget

3. Set savings and debt payoff goals

Short-term financial goals

Long-term financial goals

4. Record your spending

5. Track your budgeting progress, review, and revise

Budgeting Breakdown for Beginners

How to Choose the Budgeting Style That Works for You

Keep tabs on transactions with the envelope method

Follow the 50/30/20 rule

50/30/20 Calculator

Consider a zero-based budget

Selecting a Budgeting Tool That Suits Your Lifestyle

Common Budgeting Obstacles and Mistakes

1. Estimating irregular income

2. Paying for emergency expenses

3. Forgetting one-time expenses

Key Takeaways: Budgeting 101

Sign up for Mint to help you stick to your budget and goals

The first decade of retirement savings builds your foundation

Education savings should play second fiddle

529 basics

How to choose a 529 plan?

How much to fund?

Considerations if you have more than one child

Avoiding tax penalties on 529 Plan funds – not all expenses are qualified

What You Can Do with the Extra Money – 5 Tips

1. Increase Your Savings

2. Go on a Debt Diet

3. Invest in Your Future

4. Factor Your New Loan Payments into Your Budget

5. Continue Making Student Loan Payments to Reduce Your Principal

Forbearance Advice for New or Current College Students

Advice for Incoming and Future College Students

Finally, What about Those Who Currently Have Private Student Loans?

More Updates are Expected

Affordability is Under Fire

The Ann Arbor Rental Market is Vast and Profitable

COVID-19 and Ann Arbor, Michigan

Nate, the high school math teacher

Double Consolidation

Reducing Nate’s monthly payments

How Parent PLUS borrowers can qualify for forgiveness

Summarizing Nate’s options in dollars and cents

Not Keeping a Budget

Not Making Loan Payments While in School

Not Researching My Student Loans

Succumbing to Peer Pressure

Not Applying for More Scholarships

Avoiding Credit

This blog post does not constitute, and should not be considered a substitute for legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

1. They’ll rethink what college means—and how to pay for it.

2. They’ll understand that owning your own “home sweet home” is only sweet when you can afford it.

3. They’ll value happiness and independence over a huge paycheck.

What is a 529 College Savings Plan?

But I don’t have any money to save!

Okay. How do I get started?