Can You Save Money When You Have Student Loans?
One of the biggest issues with student loans isn’t just that you have to pay them back (and, of course, that’s an issue) but it’s the fact that having to spend a lot of money repaying debt often causes people to delay other life milestones. If you’re putting a lot of your money toward student loan debt repayment, it becomes tough to save money to get married, buy a house, have children, save for retirement, or achieve other financial goals.
However, depending on your financial situation, it may be possible to save some money while still repaying your student loans. Here are some tips.
Saving for Emergencies
Saving money for emergencies is important for everyone. If you’re living paycheque-to-paycheque and not putting anything aside for savings, one unexpected situation could send you into serious debt trouble. For instance, if your car breaks down, if you lose your job, or if any other unexpected expense happens, you won’t be able to afford this new cost without going into debt. Often, people who have student loans also find themselves getting into credit card debt as well because they aren’t able to save any money for emergencies.
That’s why it’s important to build an emergency savings fund.
Look at your budget and see if there are any places where you can make cuts. Even a few dollars each month is better than saving nothing. Set a goal for how much you’d like to put into your emergency savings each month. Once you can comfortably reach that goal, increase it a bit.
Most people should aim to have about three months of expenses saved just in case there is an emergency, but you can work up to this amount slowly. Don’t feel pressured to save this amount all at once, that’s an incredibly difficult goal.
Saving for Retirement with Student Loan Debt
One of the biggest problems for many young people is that it’s very tough for them to save for retirement. However, when you’re young, this is one of the best times to save for retirement. Why? Because the earlier you start, the longer your money will have time to grow. This means that, by the time you retire, you’ll have more money saved than if you started 10 or 20 years later, and you won’t have to put aside as much each month.
Of course, when you have student loans to repay, you’ll need to balance your priorities. The goal should be to make your student loan payments while also putting aside some money for retirement. This is even more important if your employer matches your retirement savings in any way. Missing out on these opportunities is giving away free money, so you’ll want to try to do what you can to take advantage of this situation. You also receive an income tax reduction when you contribute to an RRSP, so you may want to take this into consideration as well.
Saving for a Down Payment or Paying Off Student Loan Debt
There are benefits to prioritizing saving for a down payment and buying a home. Depending on where you live, owning a home may be cheaper than renting. Also, in many markets, the cost of home ownership continues to increase every year, so it may be in your best interest to purchase a home sooner rather than later.
Of course, if you’re saving for a down payment, you’ll be paying off your student loan debt more slowly. This can lead to additional interest charges and having too much debt can make it difficult to get a loan in the future.
Again, a balanced approach is preferable for many, but this involves setting a firm budget and sticking to it. You’ll need to not only come up with a plan for how much you’re going to save each month, but you’ll also need a plan for paying off your debt as well as a strategy for saving.
Staying Organized and Focused is Crucial
As you can see from the tips listed here, sticking to a budget is critical when you have student loan debt. Write down all of your expenses and all of your monthly debt payments and then work to make these expenses fit within your current income. You’ll want to make sure to add a category to your budget for savings as well. Look for places where you can reduce your expenses as well as opportunities to earn extra income. This can help you make your budget balance.
Saving money while repaying student loans can be very difficult, but with dedication and hard work, it can be possible.