Hardly anyone would question that our money has to go a lot farther these days. Millennials are expected to pay off student loans, pay off credit card debt, put money away for a rainy day, and save for retirement with an income that is significantly less than it should be. Did you notice that I haven’t mentioned paying for the basic necessities like housing, food, health care, or transportation? All of the basic necessities of life are rising at an alarming rate that has made it damn near impossible for young 20somethings to start out their adult lives on the right foot.
If you’re wondering how you’re supposed to manage paying for all of these things on your limited budget…you’re not alone! I’m no financial expert, but if I were making less than $50,000 a year with all of the demands of life, this is how I would prioritize my bills and debts to ensure a more stable financial future:
1. Focus on basic necessities first
What good is paying off your debt if you can’t afford a roof over your head? Absolutely none! Say it with me…if I don’t have it, you don’t have it! That means don’t let debt collectors talk you into making monthly payments you can’t afford and don’t go making new debts that will ultimately make your situation worse!
- Focus on finding a place (not Mom and Dads) that you can afford comfortably every month. Try and look for apartments where the rent includes utilities. This will save you some money and ultimately reduce your out of pocket expenses.
- Next, try to find a job that offers health care to its employees. I know Obamacare has everyone optimistic about affordable healthcare, but save yourself the headache and go with the company plan. There are tax implications with enrolling in an Obamacare plan and we have enough issues with Uncle Sam, don’t we???
- Lastly, save money on food and transportation by visiting farmer markets and carpooling. I know these ideas may not appeal to you, but the sooner you can afford these expenses, the sooner you can focus on your debt!
2. Defer those student loans and save $1000 in an emergency fund
I know this might sound contrary to other financial advice, but student loans are the most flexible debt you have. What do I mean by flexible? You can defer it, call and ask for a lower payment, or even have some of the debt forgiven. Credit card companies are not inclined to do all this for you and often don’t care that you can’t even afford a packet of Ramen to eat for dinner. They want their minimum payment and they want it now! You may qualify for student loan forgiveness so do some research to see if you’ll qualify!
- Defer student loans – Call your student loan company and request to defer your loans. Usually you can do this for up to a year at a time. You will still accrue interest on the unpaid balance, but if you’re lucky enough to have a fixed interest rate of 6% or lower, this is a good deal. Consider that the average credit card carries a variable interest rate that ranges from 9-25%!!!
- Save $1000 and place it in an emergency fund – I am inclined to agree that you should have at least 6 months of emergency savings on hand, but that’s not going to happen overnight. If you had an extra $12,000 to $18,000 a year, you would not be reading this. Focus on having at least $1000 in the bank to cover small emergencies like a medical bill, insurance deductible, or a tax bill.
3. Tackle that Toxic Debt
Now that you have managed life necessities, deferred those student loans and put $1,000 in the bank…you’re ready to tackle that credit card debt! First call the credit card issuer and ask them to lower your interest rate (you have a 50/50 chance of this happening). If they say yes, you can save money on interest! If they say no, pay that card off as soon as you can. Your plan should be simple: pay off all of your credit card debt within 3 years or less. Tackle the card with the highest interest rate and work your way down. I know there are some people who would argue that paying off the lowest balance will make you feel good about debt repayment, but we’re not children here! You will feel better when you’re debt free and saved money in the process.
Ok, so I’m going to stop here since this is a lot to take in. But stay tuned for part 2, where I share how I would tackle retirement and planning for life’s milestones like homeownership and starting a family! In the meantime, consider trying these tips and good luck!!!
Image: US News