If you read the previous article about how and why to start saving for retirement in your twenties, you know how powerful of an effect time can have on your ability to compound your savings. If you haven’t read it, what are you waiting for? Time is of the essence.
Saving money at a young age can be difficult for multiple reasons—minimum-wage jobs or entry-level salaries just cover your expenses, social pressures have you spending more money than you should and the financial burden of a college education is greater than ever. But it still should be a priority.
If you have a large amount of student loan debt, such as $50,000, paying it off may mean losing 10 years or more that you could’ve been saving for retirement. You’re not only losing the money you spend on the loan payments and interest, you’re also losing the money you could’ve gained if your payments were going into an investment account instead. Those 10 years of savings could’ve grown to hundreds of thousands of dollars by the time you retire.
Here are some things you should think about if you’re considering taking—or have already taken—student loans.
Balance your tuition with your employment prospects.
College tuitions can vary greatly across institutions. Community colleges, state universities and private colleges all have different price tags, so consider the value of the education before you commit to more than you need to spend.
Starting at a community college can greatly decrease your tuition costs. Choosing a state university with in-state tuition reductions can yield the same high-quality education as a private college that’s double the price.
If you’re adamant on going to a more expensive school for a specialized education like pre-med or pre-law, look at the rate of employment among graduates and if they have any job placement programs to help you find employment after graduating. The sooner you can start making a decent income, the quicker you can pay off your student loans and start putting money away for your future.
Trade schools and certificate programs can be effective and affordable alternatives to traditional colleges. For example, say you have a passion for cooking. According to U.S. News & World Report’s 2019 Best Colleges rankings, the average salary for a graduate with a culinary arts degree is $36,200. A private, 4-year education that costs more than you’ll make in a year may not be your best option. Consider taking classes at a community college and seeking internships or apprenticeships that could turn into paid positions instead.
Make paying back loans your priority.
Sometimes, taking out a student loan is unavoidable. If you’ve taken out loans, don’t delay when it comes to paying them back. Making minimum monthly payments will cost you more down the road and increase the time you spend in debt.
Make as large of a payment as you can afford to each month, even if it means cutting down spending in other areas, such as rent, luxuries, dining out or traveling.
Don’t be in a rush to move out.
Living on your own may be what you’ve been dreaming of since the first time your parents gave you a curfew. But before you sign away half of your income on an apartment lease, you may want to stay a few extra years in your parents’ house if it’s an option. You’ll save on rent, groceries and utilities and can use that money to pay off your student loans or save for your future.
If living at home isn’t an option, keep your housing costs down by finding multiple roommates and bypassing those granite countertops for a more modest apartment option.
While education is important, racking up student loans can put a big dent in your future savings. Consider educational options with lower tuition costs or great job prospects to get your loans paid off as soon as possible. The quicker you can put money towards retirement instead of paying off debt, the better off you’ll be in the future.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Brotman Financial Group, Inc. and BFG Financial Advisors are not affiliated with Kestra IS or Kestra AS.