According to latest data, an American graduate from Class 2016 owes an average of $37,172 in student loan debt. Loan debt in the US has recently exceeded credit card debt. However, a recent study revealed that millennials, or those aged 18 to 34, admit wasting money on things they don’t need.
Is it possible to be financially free while in school? The stories in your news feed about college students earning money enough to pay off their debts are not fiction. Financial freedom is attainable at any stage of your life. It’s just a matter of effective planning and execution. Here are six tested ways to become financially free.
Understand your refinancing options
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Your student loan shouldn’t hold you down like ball and chain. US student loan debt has reached $1.2 trillion, affecting tens of thousands of college students. Many are trapped in the vicious cycle of loan repayment years after their graduation due to high interest rates. You can break the cycle and move towards financial freedom through refinancing. There are companies that allow borrowers to refinance their student loans at much lower interest rates. You can also inquire about available protections on federal loans such as income-based repayment and federal forgiveness. However, if you secure refinancing options from a private lender, you’d be giving up these protections.
Seek assistance from professionals. If you don’t qualify for refinancing, you can explore ways on how to improve your credit standing to upgrade your risk profile. One simple step through effective financial budgeting.
Explore opportunities in the gig economy
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Working in the gig economy is a growing trend everywhere. It is composed of contractors and freelancers and temporary workers (or temps). In 2015, roughly 15 million Americans worked in the gig economy as Uber drivers, writers and web designers. The number of temps is expected to rise in the coming years as more employees prefer to work in flexible hours and save money on transportation.
The gig economy is your best option to earn money while studying. You can proofread manuscripts, teach English to foreign students via Skype, and do errands for other people on your free time. This is more practical compared to committing hours under an employment contract given your responsibilities in school. Browse projects in Freelancer.com, Upwork.com and TaskRabbit app.
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You don’t need to wait to secure a full-time job before starting your investment portfolio. If you’ve read books on personal finance, you’d know that the road to financial freedom is through passive income. This income, contrary to active income, is generated from sources that don’t need your direct efforts. Shares of stocks and mutual funds are sources of passive income that students can afford.
Do you know that mutual funds came about when a group of college students decided to pool their money to invest in the stock market? This allows the spreading of costs and risks among a number of investors. With the Internet, you can now invest in stock markets and mutual funds abroad. You just need to sign up online, fund your account, and start choosing your financial intermediaries. Online brokers charge lower rates and allow investors to manage their portfolio anytime, anywhere.
Know the workings of payday loans
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Not all credit is bad. It all depends on where you apply the proceeds and whether you are capable of repaying it back on time. For many working students, loans are inevitable. It could be for a medical emergency, expenses for books and school materials, or utility bills. Payday loans are your closest lifeline. This short-term credit is for a small amount, usually for $100 to $1,500, payable in the next payday.
Generally, fast cash loan mechanisms charge higher interest rates than longer-term loans. However, a borrower may be given the option to roll over the loan for additional fees. It’s important to choose the right lender that would never lend more than you’re capable of paying. Be aware of predatory lending practices.
“It’s not how much you make, it’s how you spend it.”
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As a student, your sources of income are limited. You have student loan repayments to take care of on top of your daily needs. But as the saying goes, it’s not how much you make, it’s how you spend it. It’s basic in financial planning that you’re not supposed to spend more than you earn.
Financial planning experts say that at least 30% of your active income should be allotted to savings and investments, whatever remains shall be allotted for debt payments and living expenses. If your earnings are not enough, you should seek other ways to earn money. Don’t divert your savings to your daily expenditures. As a student, you can be extra generous to yourself—save 15% to 20% instead of 30% of your earnings. Increase this allotment as your income increases.
Discipline yourself
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Create a monthly and daily budget and stick to it. Your budgeting must include your insurance premiums, loan payments, investment placements and entertainment expenses. Avoid impulsive purchases and unplanned vacations. Those “spur of the moment” escapades with friends are fun but can wreak havoc to your finances.
In money budgeting, prioritize your insurance and loan payments. Medical expenses not only drain your savings, they also result to lost earning opportunities. Your loan amortizations must be paid religiously to avoid penalties. Explore debt relief options, refinancing and other ways to make your repayments easier.
To attain financial freedom before earning your degree is a tough undertaking, but not an impossibility. More than any strategic budgeting, students’ ways of becoming financially free requires consistency and discipline. You can use mobile apps to help you out. PocketGuard can track the funds in your bank account, and sort your purchases and bill payments, giving you an overview on how much you can spend for the day. Mint Personal Finance tracks your finances and offers an overview of your financial state as a whole. Aside from apps, you can ring professionals for advice on how you can address financial troubles and better manage your finances.
