06 Mar 2017

How to Develop Great Saving Habits Early In Your Career

How to Develop Great Saving Habits Early In Your Career

After talking to thousands of people about student loan debt, early financial mistakes, and things they wish they would have done, I've found that one thing is always clear: They wish they had developed great financial habits earlier.

Starting out in any new career after years in college is an exciting step in life. After receiving an undergrad and most likely a masters and/or doctoral degree, the first few months of employment for psychology professionals is a huge relief.

Not to mention—you feel like you're rich! Going from eating ramen noodles to making thousands of dollars a month is a massive shift in lifestyle.

However, you have to be careful not to fall in the trap of "lifestyle inflation," which is the very common process of living at or above your means as you make more money. Understanding how to effectively save money and avoid lifestyle inflation is one of the most important financial concepts to master early on in your career.

Here are 5 ways to become a great saver:

1. Set clear goals for your future

Whether it's buying a house, saving for an early retirement, or setting aside seed money for your own firm, the goals you make are key to success with saving. Just like anything else in life, having a plan will make the journey easier.

Unfortunately, too many people go through the motions of earning and spending for the first half of their career, only to have to play catch up later on. According to the Department of Labor, every 10 years that you don't save for retirement will require three times as much saving to get back on track.

As soon as you can, sit down and make a detailed and actionable set of goals for your career and life in general. You'll need short-term goals, medium-term goals, and long-term goals.

2. Start with an emergency fund

Whether you have student loan debt from college or not, setting aside an emergency fund is unbelievably important. A healthy emergency fund needs to be at least three to six months of after-tax salary (many personal finance experts are even beginning to prefer as much as eight months).

This money needs to be as easily accessible as possible, and generally needs to be held in a "safe" account that won't be affected by swings in the market. A normal savings account will do, but also be sure to keep an eye on potential high-yield savings accounts as the Fed begins to raise interest rates in the near future.

The reason for the emergency fund is simple—it keeps you from having to max out a credit card or apply for a personal loan when something goes wrong. Accruing any kind of consumer debt, especially the high-interest variety that's associated with credit cards, can be an absolute killer of your ability to save money every month.

3. Automate whenever possible

There's enough to think about in the beginning phases of your career, which is why automating your savings is an effective tool. As technology has improved vastly over the past few years, so has the ability to set aside money every month without even thinking about it.

Most major banks allow customers the ability to set up automated transfers into multiple accounts. For example, if you'd like to save for a down payment on your house as well as a vacation, you can set up two different accounts and have money automatically transfer whenever you'd like.

Don't think that the automated transfers needs to be huge amounts, either; just $50 per month over the course of a year will turn into $600 over 12 months!

4. Consider buying a used car instead of a new one

One of the biggest mistakes I see from people that are just starting their career is spending too much too fast. Remember—lenders want to loan you the most money possible for cars and houses. The bigger the amount and longer the terms of the loan, the more of your money they put in their pockets.

Don't rush out to buy a new car just because you can afford the monthly payment. Far too often, people just starting out want to "reward" themselves or show their friends on Facebook that they are successful with their new job.

The problem is that the reward feeling fades and after the social media likes and "congrats!" comments fade, you have a large car payment that will weigh you down financially for as many as seven years.

Consider buying a used car or even saving to buy an older car with cash (for reference, I drive a $6,000 2004 Yukon and make well over $100,000 a year).

The money that you save from driving a slightly older vehicle can be a nice supplement to your emergency fund, down payment on a house, or brokerage account.

5. Join a financial community

The reality is that saving money sucks (I hate to break it to you, but it's true). It's one of the least fun parts of personal finance, but it's arguably the most important. One of the easiest ways to keep yourself motivated to save money and get ahead financially is to find a community of people that have similar financial goals as you.

There are plenty of great personal finance blogs, podcasts, and YouTube channels that will keep you both entertained and informed on all of the great things you can do with the money that you set aside every month.

Be sure to actively seek out a financial community and participate as much as possible. Your bank accounts will thank you later!

-- Bobby Hoyt is a former high school teacher who paid off $40,000 of student loan debt in a year and a half. He now runs the personal finance site MillennialMoneyMan.com full-time, and has been seen on CNBC, Forbes, Business Insider, Reuters, Marketwatch, and many other major publications.

The opinions and advice expressed in this article are those of the author and do not necessarily reflect those held by the American Psychology Association (APA).

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03 Feb 2017

Keeping Your Debt Under Control After College

Keeping Your Debt Under Control After College

For many in the mental health industry, student loans can be a massive hurdle to deal with after college. Psychology professionals face a unique challenge in the health-care industry—the cost of their degree can be extremely expensive in relation to their early career salaries.

According to a recent study by the APA, the median graduate debt load was $110,000. Unfortunately, that number excludes undergraduate debt completely. Loan amounts of that size can have drastic effects on your career path, so learning how to effectively manage loan debt after college is essential.

On top of the professional implications, massive student loan debt can lead to confusion and stress in your personal life that is difficult to manage. It's hard enough trying to find your way in today's job atmosphere, much less avoiding potential missteps that could hurt your financial health over the long term.

Here are some tips for effectively managing student loan debt after graduation:

Make payments as soon as possible

Many of the various lenders (both federal and private) allow a grace period after a student graduates. This is designed to give the borrower time to secure a job before making payments—but don't be fooled by the word "grace."

The fine print will tell you that interest will still accrue on the loans during the grace period. That means you're taking on more debt, often times without even realizing it. I've had plenty of readers tell me how surprised they were to see their new loan balance when they finally made their first payment. The more money you borrowed, the faster the numbers start to pile up.

Be proactive and make payments as soon as possible, even if it means interest-only payments to keep the loan amount closer to what you actually graduated with!

Fully understand your loan responsibilities and terms

The vast majority of student loan borrowers have no idea how their loans actually work. Student loans can range widely in both the interest amount and the repayment terms. If you want to effectively manage your loans after college, you'll need to do more than just make the minimum payment every month.

Take a look at your loan terms and find out:

  • How extra payments are applied to the loan principle amount
  • The interest rate of the loans
  • Repayment term length
  • Possible penalties that result from missed or late payments
  • How the interest is calculated on the loan amount

Understanding the basic structure of your loans will help you make important decisions later that could save you money. It's impossible to know if you will save money through a refinance if you're unsure of your current interest rate or how long the loan terms are!

Research your federal loan benefits

Admittedly, the Department of Education doesn't always do a great job of getting the word out about its various federal loan benefit programs. Depending on the career path you choose, you may actually be eligible for student loan forgiveness and not be aware of it.

These programs generally require enrollees to stay current on their minimum loan payments for a set period before any loans will be forgiven. The overall concept for these programs is to entice new graduates to pursue government/public service positions.

The biggest thing to consider when researching these programs is that there is usually red tape involved. Be sure to find out how missed or late payments will affect your eligibility in the program, and also fully understand the time requirements. If the loan forgiveness program requires 10 years of service in a specific area, make sure you actually want to stay for the long haul.

Other important benefit programs provided by the federal government are income-based repayment, consolidation, and deferment if you fall on hard times.

Consider refinancing your debt

With a median starting salary of $60,000, it's possible that many psychology professionals won't actually qualify for the above-mentioned benefit programs. If this is the case, you may want to seriously consider refinancing your student loans.

With the current low interest rate environment, borrowers who refinance may be able to save substantial amounts of money over the life of their loans. Many of these lenders are creating online platforms that seamlessly guide users through the refinancing experience.

Another cool thing about some of the private companies that are refinancing student loan debt right now are the alternative benefits. These refi companies know that they have to compete with federal loan benefits, so they're getting creative. Some companies offer helpful benefits like job placement assistance, access to financial advisors, career support, and even unemployment protection if you find yourself between positions.

Track your money with budgeting tools

There are plenty of great financial tools available for tracking your finances in today's personal finance environment. Many of them are free and feature bank-level encryption to keep your personal information safe! In programs like Personal Capital and Mint, users can input all of their account info and see all of their account balances updated in real time.

These tools usually feature budgeting and net-worth tracking, which gives users an instant picture of where they stand financially and helps them track their student loan payments. I'd highly suggest taking some time to research all of the great tools available online and taking advantage of technology that wasn't available to previous generations.

Above all, be active

It's easy to go through the motions with student loans, and the honest reality is that loan servicers would prefer that you handle your debt that way (they make more money in interest and possible penalties when you slip up).

Be active with your student loan debt the entire time you have it. Managing it correctly will allow you to have more choices in life and create the career path that you envisioned in college.

If you'd like to consider a more aggressive approach to paying down debt, check out my earlier blog here. Or if you're looking for something more moderate, I have a post on that as well.

-- Bobby Hoyt is a former high school teacher who paid off $40,000 of student loan debt in a year and a half. He now runs the personal finance site MillennialMoneyMan.com full-time, and has been seen on CNBC, Forbes, Business Insider, Reuters, Marketwatch, and many other major publications.

The opinions and advice expressed in this article are those of the author and do not necessarily reflect those held by the American Psychology Association (APA).

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