How I mean Hall is a series that shows real people who have real questions about money, and practical advice from betterment experts. Our financial planners help people the way you think with savings, investments, debt, retirement and more.
Let’s dive into Liliana’s financial goals and concerns:
Talk about your short-term financial goals. What do you expect to achieve in the next 5 years?
Liliana: To make progress in the payment of undergraduate and graduate students. Pay off a car.
Let’s talk long term. What do you expect to achieve financially in 5 years or more from now?
Liliana: Hopefully the student loans will continue to be repaid before the 15 year repayment period!
Covid-11 19 What has affected your short or long term financial goals?
Liliana: Covid influenced the start date of my postgraduate job, which limited my ability to start refinancing and start repaying my student loans until I could start after about six months যদিও even though my personal loans continued to pay interest. This has affected my short-term and long-term goals as repaying a large student loan is my current top priority.
If you could ask a financial expert for advice on a finance question, what would it be?
Liliana: How should they plan to start contributing to their retirement at the present moment when they are unable to afford it comfortably?
What financial experts say:
We asked Corbin to comment on Liliana’s financial goals. Here are his thoughts.
Like many young people, Liliana has a huge student loan. How much of the student’s income should be used to pay?
Corbin: I’m glad to see that Liliana has a full-time role after graduation, especially since so many graduates have struggled to find work this year. With her relatively high income compared to the average college graduate and her stated priority of repaying her student loans, Liliana could be aggressive with her payment plan.
There is no set amount of income that Liliana has to contribute, but before she can come up with a plan to pay off her debt, Liliana has to make sure she is paying the minimum debt on time. This will help him avoid raising fees and build his credit score.
Then, how much he contributes to his student loans depends on how much cash he has on hand after paying all his living expenses.
Given that federal loans will eventually run out, Liliana should do the following:
First pay the debt at the highest interest. People think that it is best to repay the loan with the highest balance, but the reality is that loans at higher interest rates are more expensive over time. In Betterment, we consider any debt above 5% interest or above the finance charge fee to be a high value debt. Others may use a higher number (e.g. 8%), but we take a more conservative approach here.
Since Liliana also mentions having both federal and private student loans, reunification and / or refinancing may be in her best interests. Although there is a difference between these two options, the overall benefit is being able to pay each lender a monthly payment instead of a separate payment. By rescheduling private loans, he may even be able to reduce his interest rates and change his repayment schedule.
Once Liliana finds out about her new minimum payment, she can choose to pay more for a higher interest loan or maintain a minimum payment depending on her other competitive financial goals, such as emergency funding or retirement.
How will Liliana plan to save for future retirement?
Corbin: The most important thing for her is time. Regular investment from an early age can bring a lot of benefits due to the time value of money and compound interest during retirement.
For this reason, I would strongly recommend that once Liliana reaches a manageable location with her loans and builds a three-month security fence, she begins to invest in retirement.
First, Liliana should calculate how much she needs to save. To get this number, he has to consider when he wants to retire, his possible future social security benefits, inflation, taxes and estimated return on investment.
Then, Liliana has to figure out which accounts can name a few based on her 401 (k) or IRA, chariot or dition endowment account, HSA and / or taxable investment account.
Finally, if his employer offers a match as part of his retirement plan, he should contribute enough to get the full benefit. Take advantage of this money, since not every employer is enough for one!
This is a precautionary measure against high interest rates. Since an employer pays the match “free money”, you should give this match the highest priority if you have this availability to pay extra for your high interest.
If all this sounds overwhelming, it’s perfectly understandable – but there are services out there that can help with this scenario. For example, Betterment has a retirement planning tool that helps our customers tell you how much they need to save for a comfortable retirement. We consider when and where they plan to retire, as well as their current and expected income.
Ultimately, Liliana needs to prioritize investment for retirement and be careful not to sacrifice her debt repayment plan through expenses that could resume the spending cycle.
Does Liliana have any other financial goals to start thinking about as soon as she tackles her debt?
Corbin: We always recommend creating an emergency fund as a pinnacle of financial security. This is because an emergency fund can help you pay for unforeseen expenses that you would not otherwise be able to afford, or it may force you to take on more debt. An emergency fund can provide some peace of mind, especially when many people lose their jobs during these turbulent times.
We recommend saving three to six months of living costs, including your monthly housing payments, bill payments, utilities, groceries and other recurring monthly bills.
If Liliana is able to repay her high-interest student loans, create an emergency fund, retire, and still have extra cash to achieve other goals, I recommend focusing on her next highest priority, such as stopping her car. Whether his monthly loan payment is increased or repaid early, he should keep in mind that lenders are not always interested in helping later, as they may lose their potential income.
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