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New Year’s Resolutions That Will Save You Money

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Let’s be honest with ourselves, most everyone creates a New Year’s resolution each year, but very few of us actually stick to those commitments. Whether it is to work out or study more, it always seems like at about the three week mark those goals start slipping away. Setting realistic and achievable goals are the most important aspects of creating a resolution and could help you stick to it for a longer period of time. Money normally grabs everyone’s attention and with that being said, here are few money-saving New Year’s resolutions that are reasonable but will require continued progression throughout the year.

  1. Become debt-free

We are going to start with the big one first – freedom from your debt. Whether or not this is a realistic goal will depend on your situation and determining your financial situation. What type of debt you hold (credit, car loan, mortgage, etc.), what are the interest rates associated with each, and your income level will all determine how quickly you will become debt free.

It is often helpful to start targeting the debt with the highest interest rate first and so on. That will commonly be your credit card debt, which could have an APR of nearly 15% – 20%. It may also be helpful to pay the smaller debts off first to build some confidence going forward. Saving a few extra dollars each month could go a long way to freeing you from this debt.

  1. Discover ways to generate a side income

Finding extra income could be a great resolution that is very much achievable. Having excess spending money at the end of each month could free you up and relieve the financial burden from your shoulders. Even an extra hundred dollars a month could be a great way to reach other goals that you have and prepare yourself for the future.

Signing up to be an Uber or Lyft driver, finding a weekend job, or becoming a tutor are a few ways you could possibly earn some extra cash.

  1. Start an emergency fund

If you want to sleep better at night, building an emergency fund might be a great way to do that. You never know what tomorrow will bring so planning for those risks ahead of time could save you from in trouble in the future. One way you could start doing this is by saving an extra $75 dollars a month and putting it aside in case of emergency. If you continue contributing to the fund each month, you will have a safety net in place for those situations that you don’t plan for.

The next time your car tire blows out, you won’t have to stress about where you will find the money to replace it. Please remember that if you have outstanding debt, you might want to deal with that before building up your emergency fund.

  1. Build a budget

Starting off the New Year with a budget can be a very easy resolution that you can complete as you watch television. No two budgets will look the same, so it is important to establish one that works for you and one that you can stick to. The hardest part about a budget is having the discipline to actually work hard to make a difference in your situation.

One way you could go about creating a budget is first estimating both your monthly income and expenses, while determining whether each expense is a need vs. want. From then, you could go into tracking your actual spending. Keep your receipts or having a journal for recording your expenditures at the end of each day are a few ways you could go about doing this. It is important to see the differences between what you think you’re spending and then what you’re actual spending. To complete your budget, you can then make the proper adjustments towards each expense and become ready to live on a budget and save money.

As the New Year approaches, tell yourself that you are going to set a resolution that sticks and one that will truly have an impact on your life. These are just a few realistic and achievable resolutions that could help you get on the right track with your finances.

Nolan Keim
Peer Counselor I
Powercat Financial Counseling
www.k-state.edu/pfc

Start Saving Now!

Planning for a future 40 years from today may seem impossible, crazy, and downright unnecessary… especially when it’s hard enough to see past that dreadful exam you haven’t started studying for. While retirement is in the far off future, saving for retirement early will help you maintain your standard of living as you enter your 70s and help you avoid turning back to your college ramen noodle diet.

Why Save Now?

Ideally, you should start saving in your 20s, once you graduate and begin earning paychecks. By starting a retirement fund today, your investment will have more time to grow and compound, meaning that each year’s gains will generate their own gains next year. The following graph shows the impact of investing early.

This chart assumes a 7% annual return. Investing $5,000 annually between the ages of 25 and 65 will result in a total of $1,142,811 for retirement. Your retirement fund will have $602,070 more than if you would have waited to make the exact same investment…10 years later. For further comparison, if you only invested between the ages of 25-35 (10 years), you would have earned $61,329 more than investing between the ages of 35-65 (30 years), all else equal.

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That sounds great! So how do I get started?

How you plan for retirement when you’re younger will differ from when you’re older. When you’re younger, you should save at least 7% of your salary for retirement. With the average salary of those between the ages of 20-30, $32,000, your average annual retirement savings will be approximately $2,240. This equates to putting away $43 per week, or giving up a few Starbucks coffees or Uber rides.

Many employers will offer a 401(k) retirement savings plan. If your employer offers to match your 401(k) contribution, take advantage of this benefit by contributing at least the amount that they’ll match. By doing so, you will double your retirement contributions at no additional cost to you.

If your employer does not offer a 401(k) plan, you might consider an IRA (Individual Retirement Account) as a means of investing for retirement due to their tax savings. You can open an IRA through your bank, or other entities such as Wells Fargo or Edward Jones. When choosing what to invest in, you will want to invest more aggressively when you are younger. This means you will want to invest in high-risk/high-yield options, such as stocks. Even if your investments perform poorly in the short run, you will have time to recover financially prior to retirement. Investing is no easy task and many choose to hire a financial planner. To ensure your planner is top-notch, you can utilize http://www.plannersearch.org/ to search for planners who are certified.

I Can Rely on Social Security, Can’t I?

In order to be well prepared for retirement, it is a good rule of thumb to save the equivalent of 85% of your end-of-career salary for each year of retirement. For example, let’s say you make $80,000 per year at the end of your career. You will therefore need approximately $68,000 per year in retirement, or a total of $1,360,000 for all 20 years. The average Social Security monthly retirement payment is only $1,334.21. This comes out to just $16,010.52 per year, leaving you $51,989.48 short each year.

Budgeting Your Life with Your Finances

Saving for retirement shouldn’t mean compromising your dreams and goals in your 20s. By creating and utilizing a budget, you can balance your financial responsibilities (saving for retirement, student loan payments, rent, etc.) with the things that matter to you (buying that engagement ring, backpacking across Europe, finally buying food other than ramen, etc.). To kick start your budget, you can utilize the Spending Plan Worksheet that can be found at www.k-state.edu/pfc/budgeting. For more hands on help with saving for retirement or budgeting, feel free to set up an appointment with a peer financial counselor by going to www.k-state.edu/pfc/services.  By making the choice to start saving for retirement today, you will greatly increase your wealth, opportunities, and lifestyle in the future.

Sources:

www.saltmoney.org

http://www.cheatsheet.com/money-career/3-big-benefits-of-saving-early-for-retirement.html/?a=viewall

www.jpmorgan.com

Jillian Taylor
Peer Counselor III
Powercat Financial Counseling

Repaying Student Loans

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For those of you with student loans, you may have noticed that your unsubsidized loans have already started to accrue interest while your subsidized loans have not.  This is because subsidized loans are need-based loans that don’t accrue interest during deferment. On the other hand, unsubsidized loans begin accruing interest when they are disbursed.  Even though you don’t have to start paying the interest that has started accruing on your unsubsidized loans until you have your grace period has passed, it helps in the long run if you do.

In this example, a student takes out a $5,000 unsubsidized loan with an interest rate of 3.76% during their freshman year of college.  After four years, the student graduates college and then takes advantage of the six month grace period before paying back any of the interest or principal on the loan.  During that time, the student accrued interest of $846 on the loan, increasing the loan balance to $5,846.  If the student uses the standard repayment plan, which is the loan balance divided up into 120 equal monthly payments over 10 years, then the student will have to pay a total of $7,036 in repaying the loan.

Now, let’s say that the student paid the interest that accrued during deferment of $846 before the grace period ended, keeping the balance of the loan at $5,000.  If the student uses the standard repayment plan, then the student will have to pay $6,018 to repay the loan, bringing the total amount spent on the loan to $6,864.  By paying the interest that accrued during deferment before the end of the grace period, the student will save $172 by the end of the repayment.

That student was able to save $172 by paying the interest that accrued on the unsubsidized loan during deferment because of avoiding capitalization.  Capitalization on student loans is when the loan servicer adds the interest that accrued during deferment to the principle balance of the student loans.  By doing this, when it comes time to repaying the student loan, the student will then have to pay interest on the principal and the interest accrued.  Therefore, the student will be paying interest on interest.

While it may seem like the student in our example didn’t end up saving much in the long run because it was only $172, the student only borrowed $5,000.  Our example student’s loan debt is extremely low compared to the average student.  According to Student Loan Hero, “the average Class of 2016 has $37,172 in student loan debt.”  This means that the average student has over seven times the amount in student loans than the student in our example.  As the amount of loan debt increases, the more important it is to avoid capitalization.

Timothy Stricker
Graduate Assistant
Powercat Financial Counseling

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