Written By Travis Hornsby, CFA®, CFP®
Rob Bertman and Meagan McGuire are two experts on Student Loan Planner®’s team of consultants. McGuire is a Certified Student Loan Professional™ (CSLP), and Bertman is a Certified Financial Planner™ (CFP) and Chartered Financial Analyst (CFA).
Besides their work at Student Loan Planner®, both McGuire and Bertman run businesses centered on budgeting and organizing finances.
Bertman and McGuire share their strategies to find balance with budgeting, saving, and paying off debt.
Finding balance between paying off debt and saving for the future
Finding a balance between your savings rate and what you’re putting toward debt is important. “It’s a question we get all the time,” said McGuire. “What I don’t like to see is when people have that blinder effect where they only focus on one area.”
You shouldn’t only focus on putting every extra dollar towards debt, especially with student loans. “It could take 10, 15, 20 years – maybe even longer – to pay that off,” said McGuire.
If paying down debt has been your main focus, you have a significant disadvantage because:
- You may be debt free, but your net worth will be $0
- You lost a lot of time in the market and missed out on the power of compound interest
“Investing early and often is important to gear you up for financial independence,” said McGuire.
How to create a budget you can live with
Bertman’s approach to budgeting is a technique he designed when he became a parent. With adding the “three D’s” – diapers, daycare, and doctor bills – he struggled to maintain quality of life while balancing his budget.
“I developed this framework called keep, cutback, eliminate,” said Bertman. “It’s a three category budgeting system to help people align their spending with their values and priorities.”
The “keep” category are your must-haves. “If you’re in a relationship, and one person says it’s a keep, there is no veto power from the other spouse or partner,” said Bertman.
The “cutback” category is the spending you do on experiences you enjoy but could probably reduce the amount you spend. For instance, if you go out for lunch every day at work, packing a lunch one day a week will reduce your spending in that area by 20%.
The last category is things you can probably eliminate from your budget. It might be a subscription you forgot about or a purchase that, in hindsight, you felt was a complete mistake.
Strategies to prioritize your finances
Not knowing how to prioritize the money you have coming in can cause significant anxiety. Should you focus more on saving or investing? Is it okay to spend $300 on going out to eat every month?
If you have credit card debt, make paying it off a top priority. “A show-stopper in a plan is credit card debt,” said McGuire. “Credit cards, on average, will have above 20% interest that it’s charging you.”
Once your credit card debt is paid off, McGuire says to focus on debt with an interest rate above 5% to 7%.
Bertman has a similar approach. Getting the “biggest bang for your buck” is a good way to approach saving, investing, and paying back debt. However, your risk tolerance with investing and savings is an important consideration.
“Some people really want to have money in the bank – they say it feels like security,” said Bertman. A common situation is where you might have enough money in your bank account to pay off the credit card debt, but you can’t part with the cash.
“If someone has $10,000 in their bank account and $5,000 in credit card debt, I wouldn’t recommend – if they’re really uncomfortable – to take all $5,000 and pay off the credit card debt,” said Bertman.
But he believes in a gradual approach. “I’d at least have them take $1,000 or $2,000 to wipe off a little bit there.”
The best strategy is the one you can stick with
The best financial strategy is the one you can stick with. A drastic approach might get you to your end goal faster, but you’re likely to suffer burnout along the way – and that can lead to giving up.
It’s about what’s most important to you: the security of cash in the bank, the freedom of not having debt, or knowing you’re growing your wealth over the long run.
No matter how much debt you have or your career decision, a plan can help you achieve your goals. If you need guidance for balancing your finances with student loan debt or aren’t sure if you should refinance or go for an income-driven repayment plan, book a consult with one of Student Loan Planner®’s consultants for expert advice.
Not sure what to do with your student loans?
Take our 11 question quiz to get a personalized recommendation for 2024 on whether you should pursue PSLF, Biden’s New IDR plan, or refinancing (including the one lender we think could give you the best rate).
