You graduated from college last year. Your expectations were big and your dreams even bigger. You had visions of yourself driving a sports car, eating dinners out at fancy restaurants, and finally being able to relax now that you have a real job and a salary to go with it.
Then reality set in.
As an adult in the real world, things cost more than you realized. That $50,000 a year job in your field doesn't exist. And last month your student loan payments kicked in, leaving you with a monthly expense you wish you could put off for a few more years.
What options are out there for you? How can you get ahead? How can you reach your financial goals?
While millenials have often been portrayed as self-obsessed and lazy, more recent attention has focused on how nothing could be further from the truth. Millenials want to be smart with their money. They want to make good life decisions. They can live without luxuries their parents have if it means preparing for a better future.
Being responsible with your money - and your student loans - comes at a price. Sometimes you will have to say "no" to things you want to do. Sometimes you will have to say "no" to yourself. You must constantly weigh needs vs. wants, be disciplined, and learn the long term value of someone who doesn't make impulsive decisions with their money. Financial success takes planning and goal setting.
We've taken a look at three common financial goals of millenials and have offered some tips to help you get there.
Goal #1: "I don't want to be paying off my student loans forever."
It's hard to drown out all of the noise in the media about students being financially impaired by their student loans, sending their children (and grandchildren!) off to college while still making payments; putting off buying houses because they are struggling with college debt; unable to start a business of their own or save for retirement. It's depressing if you read it all, and you may think there is no way out. But the truth is, most media attention relies on stories of outliers with extreme amounts of debt and hopefully you are not one of them.
If you are having trouble making your student loan payments or just can't bear to send a few hundred dollars a month to Uncle Sam, you may have enrolled in an extended, income-driven, or graduated repayment plan. While these plans definitely have some great benefits, and can keep you out of financial trouble in the short term, they are more likely to lead you down the "paying off my student loans forever" path.
Our main advice: if you can, stick with the standard repayment plan. Make sacrifices now to be debt free later. Pay off more than the minimum monthly payment every month if you can find a way. In your thirties, you will be SO GLAD you are debt free when your peers are not.
You may also want to look into student loan refinancing. There are programs out there that may help you reduce your rate, your term or both.
So how do you learn where to make sacrifices? Examine your spending and develop a budget.
Goal #2: "I don't want to ruin my credit, but I can't afford my bills."
Cheers to you for wanting to keep your credit in good shape. It is a wise goal, and one that will help you earn better interest rates, keep your credit cards open (some issuers close your card if they find you have bad credit during a periodic review), and even help you get a job (employers often run a credit check before offering employment - bad credit can be seen as a sign of irresponsibility).
However, when you have bills to pay and you don't make much money, it can be easier said then done. Your first step should be to examine your spending. Use an aggregator like mint.com to help you determine how you are spending your money, develop a budget, and figure out where you can cut back. Maybe you are spending a lot more money on grab-n-go snacks and coffee than you thought. Maybe you are paying for cable when you can watch TV online. If you can carve $50-$100 out of your spending, will that help you cover your bills?
If not, you may want to take a look at an alternative arrangement on your student loans. If you have federal loans, you have lots of options. Income-driven repayment plans (there are many and they all have different names but your loan servicer can help guide you) will base your payments on your earnings. This could potentially make your payments affordable.You may also be eligible for a graduated or extended repayment plan which could drastically reduce your payments.
All of these options will typically increase the total amount you pay in interest in the long run, and can increase the number of years you will be in repayment, so if you don't have to take these measures, then you shouldn't. But, if you are in a financial bind, then call your servicer and talk through your options. Ignoring your loans is not the right answer.
If reducing your student loan payments still doesn't get you where you need to be, then consider deferment or forbearance. Which type of help you qualify for depends on your individual circumstances. Either option will delay your payment for a period of time while you get your finances in order.
If you have private student loans, simply call your lender to learn more about your options. Every lender's "safety net" is different but at the very least, they usually offer some amount of forbearance time.
So what's the first step to keeping your credit safe? Examine your spending and develop a budget.
Goal #3: "I want to save for a _______ (fill in the blank.)"
Saving is an admirable goal. Financial goal setting as a new graduate is a sign of your maturity and discipline. You've probably heard the term "pay yourself first" before. This phrase operates on the principle that each time you get paid - before you purchase anything or pay any bills - you set aside a certain amount of money for savings. Of course, how much you set aside will be determined by how much you require to pay your bills and everyday expenses.
But, even if you think you can't afford to save money for emergency expenses or a long term goal, do so (even if it is just $10 a check!). Paying yourself first is the first "bill" you should pay from every check.
When you set a financial goal, its good to think long term, but don't forget to set yourself milestones along the way. Celebrate and give yourself a pat on the back as you meet those milestones. For example, maybe your goal is "Save $20,000 by 2025 for a house." Now you need to think about a plan for how to get there. Your first milestone might be to save $2,000 by January 2017. That will require you to put away $167 a month. Is this attainable? How can you re-arrange your budget to make it happen? And if you can't, you don't have to entirely trash your goal - you just may need to re-work it.
So how do you reach your savings goals? Examine your spending and develop a budget.
Do you see a common theme here? Examining your spending, figuring out where you can cut back, laying out a budget plan, and making adjustments is the best way to reach your financial goals.
You are a millenial. Your spending habits are probably more like your grandparents. You can do with less than your parents. Now go show them that you can reach your financial goals. Good luck.