On Your Own

Get the latest information and tips on financial planning.

Don't Just Count Your Blessings - Take Advantage of Them!

If you're one of the fortunate ones without student loans, don't squander your money.

It's all over the news right now - the rising costs of education and out-of-control student loans. Too many graduates find themselves under tens of thousands of dollars of debt - before they even get started in life!

Advice and articles abound about how to handle student loans. But what if you're one of the lucky ones who got out of school without any debt? Maybe your parents paid for your education, or perhaps you worked your way through college, or received a hefty scholarship. While your friends are freaking out about those looming payments, you're....well, what are you doing with your money?

In our experience working with young professionals, the reality is usually that you're wasting it. Suddenly you have money coming in, no homework to take up your evenings, and it's very tempting to spend your money on a lifestyle you can't quite afford, instead of putting your extra cash to work for you and your future self.

The most common mistake we see young folks make is taking on too much rent or mortgage. It's tempting to want that brand-new or newly-renovated "dream home," but chances are that, in your twenties or early thirties, you can't afford that much house. Maxing yourself out on rent is one of the biggest ways to sabotage your financial flexibility for the long-term. In general, we recommend spending no more than 25 percent of your gross income on your home. And if you can't afford even a modest down payment, or struggle to come up with that security deposit, it's very likely that you're walking into something you'll regret later.

Another pitfall we see among grads without student debt is that they're apt to take on other types of debts. Brand new fancy cars, credit card purchases, etc., even if you can cover them with your income, prevent you from saving and building that money for the future.

The fact is that if you don't have student loans to pay, that money is going somewhere. Now, I know that no one is going to start out making a student loan-sized payment into a savings account. I'm human too! So where should you start? Let's say a hypothetical student took out $40,000 in loans to attend college. That would typically come with a $450 monthly payment over a decade or so. Again, I would never expect you to strain yourself to put that much into savings - you want to enjoy the fact that you have no debt, and I am all for that - within reason. That $40,000 loan would come with about $110 of interest paid each month. So why not start there? In the 10 years it takes your friends to pay off their loans, you could have a nearly $20,000 nest egg to your name, and still have a little cash to enjoy.

Finally, one big way you can take advantage of getting out of school debt-free is to take a job you want, instead of one you feel trapped into because of your loan payments. Perhaps you want to work in non-profit, or your dream job is in an industry that typically pays slightly lower salaries than others. You have the freedom to dictate what career path you take - not your student loan burden.

Whether you're facing student loans or not, we love working with new grads and young professionals - getting started on a solid financial path early can set you up for financial flexibility and freedom later. Let us help.

Loading Conversation