How to pay off student loan debt while saving for the future

http://www.savingforcollege.com/articles/how-to-pay-off-student-loan-debt-while-saving-for-the-future-762

Founder of TheCollegeInvestor.com, Guest Contributor

Should you work on paying off student loan debt or work on building your savings for things like retirement and your children’s education?

Some people think it has to be either/or, but in reality, you have the option to do both.

I’m a firm believer that there is no one-size-fits-all financial solution and there’s absolutely no reason why you can’t work toward your other financial goals while still paying down your debt.

In fact, if you have super low interest rates on your student loans, then it often makes much more sense to make minimum payments on them while investing in higher earning assets.

If you’re determined to save for your future while eliminating your debt, here’s one way to do it.

Start with the budget
Your very first step in any solid financial plan begins with the basics. You need to know how much money you have coming in, how much you have going out, and what you have left to work with.

If you don’t already have a household budget, start by looking over your past years’ worth of expenses to see how much money you spend in an average month. You should also make a list of budget accounts so you can see where your money is going.

Your starting point is NOT meant for you to beat yourself up about your past spending mistakes. This is simply to see where your money goes and to get organized.

Once you have all of your expenses listed out, look and see if there’s anything you can immediately cut. As you’re making budget cuts, remain realistic. If you know that you’re going to buy a coffee every single morning, then put it in your budget. If you know that you’re going to spend $50 a month on clothes, then put it in your budget.

If you’re not realistic then there is absolutely no point in making a budget.You can slowly work on lowering your expenses where need be. It’s not something that’s going to happen overnight.

Don’t forget you can earn more
When you create your budget, don’t forget this simple truth – there are two sides to the money equation. Yes, you can cut expenses, but you can also earn more money.

One of the best ways to achieve your financial goals is actually to earn a side income and leverage that additional buffer to pay down debt, or start saving for your children’s education. Since the money is “extra”, you’ll feel better about putting towards a great cause.

For those who don’t know where to start, we have a great resource on simple ways to earn more money.

Come up with your debt pay-off strategy
Now that you know how much money you have left over each month you can start creating a debt pay-off strategy.

Determine how quickly you’d like to pay off your debt and use a debt pay-off calculator to see how much money you’ll need to contribute on a monthly basis to reach that goal. Remember, you can achieve that goal by either cutting costs or by earning more.

Another thing that you should definitely look into is refinancing your student loans if you’re currently paying high interest rates. By refinancing your student loans to a lower rate, you’ll have more money to put toward your other financial goals while still paying off your debt in your desired amount of time.

Determine your other financial goals and start contributing
Next, determine and map out a plan for your other financial goals.

If you don’t yet have an emergency fund, I’d suggest that you start there. Once your emergency fund is filled with 3-6 months’ worth of expenses, you can focus on saving for retirement and saving for your children’s education.

Again, you can use financial calculators to determine how much you need to save for each of these. Your main goal should be stashing money away for retirement as early on as possible. After all, the earlier you start saving the less money you’ll have to save over the long run! And always remember, your children can get a loan for college, but you can’t get a loan for retirement.

Once you are saving the amount you need for retirement, you can then add your children’s college fund. The cost of a college education will continue to rise, so any amount you can save to help your children will go a long way. Remember, the earlier you start, the more time you have to allow the power of compound interest to help you grow the money.

Tweak as you go
When you first start this plan, you might feel like you’re making minimal progress. However, once you get into the routine of budgeting, you’ll be able to more efficiently cut your costs and free up more money to go toward your financial goals. In addition, as you get pay raises or earn more money, you can contribute more as well to both retirement and saving for your children’s education.

Robert Farrington is the founder of The College Investor. As America’s Millennial Money Expert, he helps young adults and families escape student loan debt and start saving for their future. You can follow him on Twitter or Facebook.