Well, time is surely ticking on your student loans. Payments will begin soon, after two years of the pandemic-related deferment where no payments were due and no interest accrued. Some continued making payments, but most did not. So, now is the time to rework that budget to factor in those payments.
First, locate your student loan servicer – the company that manages your loan and processes payments. Some have consolidated in recent years, so it is important to track the loans down first. Then, review your payment plan and make changes, if needed. There are several repayment options available for student loans. Your Francis Financial Planner can help you determine which option is best for you.
Next, you’ll need to rework your budget. We understand this can be a painful suggestion. For some, even the thought of budgeting is distasteful. After all, who wants to do without the things you want? Who wants to track every nickel spent? But it doesn’t have to be that way with Zero Sum Budgeting.
This approach works because it incorporates our current spending behavior into the budget. Here’s how most of us budget…we get paid, we pay our bills, then we try to get to the next paycheck before the leftover cash is gone. With Zero Sum Budgeting, the goal at the end of the month is the same: to spend down to zero… you heard us, zero.
Here are four easy steps to help you finally set and stick to a budget, that includes student loan payments, and still allow you to save for the things you want.
1. Do the legwork. Track your spending for a month or two. You’ll need to know how you currently spend that hard-earned cash.
2. Save comes before spend. We’re accustomed to automatic savings in our workplace retirement plan. In fact, most agree that this is a key to successfully building a retirement nest egg. Zero Sum Budgeting takes that same concept and applies it to your budget. It’s simple: you establish a separate savings account for the things you want. Then, each paycheck you add money to these savings through direct deposit so that saving happens first.
3. Set up two checking accounts, one for fixed expenses and one for discretionary spending. Split your post-savings net pay into these two accounts. For the fixed expenses account, you will add enough to cover all your fixed expenses like the mortgage, car payment, utilities, and student loans.
4. Now, here’s the key: you use the discretionary spending account for everything else… gas, groceries, dining out, etc. Using this method, you don’t have to keep track of every coffee
or lunch you buy out. You just spend it down to zero then stop spending until the next pay day. Because you have set up correct savings habits already and have your fixed expenses covered, you are free to use that money as you see fit. You might even be able to reward yourself if you have money left over. Of course, this assumes you use a debit card to access the cash in the discretionary account. Leave the regular credit card at home. If you are paying off a credit card balance, include that monthly payment in your monthly fixed expenses.
Don’t get discouraged if the first time you find that the paycheck doesn’t give you enough to do it all. That’s the knowledge you need. Now you can make informed decisions about where to cut to make the math work. Perhaps you can lower fixed expenses a bit or lower deposits into your savings accounts.
Controlling what you spend is truly the key to building wealth. Zero Sum Budgeting helps you reframe the budgeting process in your head so you can get the things you want.
Did You Know?
Francis Investment Counsel, and its MoneyAdvice@Work services, have rebranded and shortened our name to Francis LLC. We’ve updated our look with new logos and website and refreshed our messaging to better reflect the way we serve you.
We will continue to provide personal and uncompromised financial wellness advice on all money matters – without any hidden sales angles. Our advice is always conflict-free, meaning we won’t make money off your investment decisions.
Our sole desire is to help you achieve the Work-Life-Money Balance that leads to strong financial futures and more fulfilling lives, inside and outside of work. Visit our new website, francisway.com to explore the new look and orient yourself to the new and improved Participant Portal. Then, book a meeting with your financial planner!
