How to Budget Money After College

Getting though college is not easy, so it is no wonder that so many students just borrow as much money as they can with little regard for the consequences. Today, the average amount of individual student loan debt is around $20,000.

A Sound Investment?

We often hear that many different careers are going to be “the next big thing”, but popularity does not necessarily translate into cash. For example, wildlife workers may be in great demand, but the pay for such jobs necessarily is very low. Additionally, many popular careers are misrepresented by very rare high-end salaries.

Lawyers who are in the top 5% of their classes may obtain lucrative first jobs, for example, but those in the bottom 15% often get public service jobs with pay less than that of a high school teacher. (As an interesting side-note, lawyers in the middle of their classes eventually become the biggest money makers.)

Salary and success in a given field ultimately depend upon individual factors like values, personality, drive, innovativeness, and contacts. Even if you are a perfectly matched for your career, however, your success could be hampered by too much debt in comparison to your income. While it might seem easy to just ignore financial planning and hope for the best, do not do this! College graduates must be in tune with their debt loads, and must develop strategies to manage it.

Points of Worry

The last 30 years have shown a slow decline in career salaries in the United States. As the traditional workers of salary positions in this country, this decline has had an especially significant affect on men. In the past, a new college graduate would be willing to accept a position with modest pay with hopes of working his or her way up in the company. Nowadays, however, it is rare for a worker to commit to a “lifetime company” because of financial concerns, and student loans add to the problem.

Graduates today must adjust to life after college simultaneously while juggling their newly acquired debt, which is larger than ever has been before. Many experts even believe, in fact, that the rising costs of repaying loans have much to do with graduates’ decisions to delay marriage and have children later and later. This discussion could fill an entire novel, but this short article is a fine start toward planning for finances after college.

Saving is Smart

The best action a student can take to improve his or her financial leverage after graduation is to begin to save during college. The federal government continues to place more and more responsibility for college financing onto the student and the student’s family, so saving has never been more important. As of 2006, federal loans tailored to parents (PLUS loans) have interest rates almost as high as 8.5%. Many students who might otherwise have been set with PLUS loans now must rely on other loan sources.

PLUS loans require that repayment begin immediately after graduation, so many people try to minimize the amount they have to pay until that time. The general expectation is that the graduated student will help to repay the loan, but it is very important for parents to set a great example for their child in controlling their debt. The rule of thumb is not to let loan debt for college account for more than 33% of the parents’ income. Student loans exist for a reason!

Both parents and students must keep accurate, corresponding accounts of the cash being advanced for college, including any “gifts”. Similarly, it is incredibly important for parents to share honestly with their children how much it is costing to put them through school. On the other hand, students should feel comfortable in explaining to their parents what real concerns they have about breaking the budget. Such candid discussions are crucial for workable finances, and the earlier they happen, the better.

If opportunities for such discussions have been missed or are unlikely to work as planned, parents should consider a financial counseling session. An objective party can provide valuable advice that may be more likely to invoke positive involvement from the college student than a family discussion. It also might bring up some issues that your family has never even thought about.

One very real consequence of failing to cut college costs and saving to pay off debt shows itself in career savings. Putting off payments on student loans means that a graduate will be facing interest payments rather than principal payments for a long time. This creates a domino effect that forces many graduates put off individual retirement, as well. In short, failure to save early tends to precede failure to save in one’s career.

Expecting to Pay

Most successful repayment plans include an ability to pay at least 8% on principal per year. 8% should be your goal. Every student and financially involved parent should have an ongoing, written record of the total debt, and a solid plan to repay it after graduation. As a point of departure, each $1,000 of federal student loan money will cost about $12 each month for 10 years.

Conclusions

Students are becoming less and less worried about borrowing money for college, even while career outlooks are uncertain. In fact, borrowing is growing more quickly than the apparent need for money! In the long run, the college graduates who will be most successful at managing their finances are those who learned early how to control debt while saving resources.