It’s exciting getting your first job out of college! You probably have the largest paycheck that you’ve ever received in your life, and nobody is there to tell you how to spend it. So it’s easy to go a little crazy with that new income and forget about those pesky student loans.
Let’s look at six areas in which college students and recent grads often splurge and discover some real-world examples of how to combat that spending impulse.
- Dining Out: This splurge is probably the biggest culprit of fun, but unnecessary, spending. I know once I graduated, dining out suddenly became a possibility with my full-time salary, and I started eating out much more than I ever had growing up or in college.
And it’s great, even healthy, to eat out every so often, but watch how frequently you’re doing it. If you’re grabbing a $10 lunch at the Panera right next to your work every day, that’s $50 a week, $200 a month, and $2,400 a year!
Cutting down to just 2 lunches out a week would be $20 a week, $80 a month, and $960 a year. That’s almost $1,500 in savings!
Consider spending the $1,500 you’d save on prepaying your loan. Most loans don’t require you to start paying on your loans until six months after graduation. You could have a good $750 paid down in those six months by just eating out twice a week for lunch.
- TV Expenses: We all love to come home and turn on the TV, eat some food, maybe pour a glass of wine, and relax. But it can get really expensive!
According to recent reports, the average American spends $85 a month on cable!1 That, of course, doesn’t include Amazon, Netflix, Hulu, and all the other streaming apps. It’s very likely that you probably are spending $200-$250 a month if you have cable and other streaming apps.
Now if you’re feeling really drastic, you could cut it all, but I’d encourage you to start by cutting one or two. Cable might be your best choice, as it’s often the most expensive, and let’s be real: we don’t watch most of the shows anyway.
If you’re a football fan like me, you could consider downloading the NFL app, looking into other streaming options, or going to a bar in town to watch the games.
Let’s do the math on how much you could save. $85 a month is $1,020 a year, so just by cutting cable, you could save $1,000 a year. And you could use that money to pay the interest on your student loans so that you can pay them down faster.
- Cell Phones: Phones can be pricey, especially if you get a new phone every two years and choose an expensive plan. But if you look into alternatives, you can save a lot of money on your cell phone.
Prepaid plans are normally the best way to go, and what some people don’t realize is that most major cell phone carriers provide them.
One option through a major cell phone carrier would be T-Mobile, which has a variety of prepaid plans that range from $3 a month if you don’t use your phone very much to $70 a month for one line.
Another option is Verizon. With a prepaid plan through Verizon, you can bring your current phone, so you don’t have to worry about the cost of a phone.
At Verizon, a 3GB prepaid phone plan costs $40 a month. That’s $480 a year. A 4GB (prepaid has odd; regular has even) phone plan costs $50 a month plus the $20 a month device cost. That’s slightly over $840. With a prepaid plan, you save $360 a year!
If you’re still in college, $360 is about the amount you’d spend on books for a semester, so instead of pocketing that money, why don’t you put it toward the books you’ll need for your education? Plus, when you sell back your books at the end of the semester, you’ll still have some money left over for the next semester!
Alcohol and Bars: When you’re a 20-something, the way to meet people is often at bars or social events that include alcohol. It’s just a part of the culture. But alcohol can get really expensive if you go out a lot.
I’m not suggesting that you become a teetotaler (although I have several friends who are due to family history, and I have great respect for them). If you’re looking to save money on going out, you could consider setting a limit on the amount of money you plan to spend while out.
Let’s say that you spend $25-$50 a week on alcohol between going to hang out with your friends and getting some wine to drink at home. That’s $100-$200 a month and $1,200-$2,400 a year! If you cut down your alcohol expenses to $10 a week, you’ll save a minimum of $60 a month and $720 a year.
You could use this additional $720 to pay off your loan quicker, but be sure to check that it’s okay for you to do that. Or you could put it toward an emergency savings fund (where you have 3-6 months of income saved for any unexpected expenses).
- New Expensive Car: You probably drove a pretty old car in college, and it didn’t matter because everyone else did. But now, you might be a recent grad, and all your coworkers have nice, new cars. Since you can afford one now with your full-time salary, you might be tempted to buy one too, but don’t do it just yet!
New cars can be expensive, and they depreciate in value very quickly. If you can—wait until you’ve had a chance to work a couple years, pay down (and maybe completely pay off!) your loans, and then trade in your old car for a newer vehicle.
If you do really need a new car, I’d recommend getting a used car in great condition. It can save you a lot of money. See if you have any relatives who might want to sell a car or check out a site like CarMax.
Used cars can get a bad rap, but often times, they are really a good deal. My fiance purchased a GMC Sierra truck for a ridiculously good price, and you can’t tell that it’s a couple years old. It looks brand new.
If you want to get a new car, you might be spending around $525 a month2, which is $6,300 a year. 6k is a pretty substantial amount. If you have the average amount of debt of around $25,000, that’s about 25% of your loan before interest. In one fell swoop, you can tackle 25% of your loan by not getting a new car.
- Credit Card Interest: This splurge can apply to everyone because we all have material possessions we would like to have. For some people, it’s clothing, makeup, and accessories. For others, it’s books, fancy pens, and notebooks. And for still more, it’s firearms, power tools, and recreational vehicles.
And it’s easy to see your credit limit of let’s say $3,000 and think of all the cool things you could get for yourself. Plus, if you use your credit card, you just have to pay it off slowly so it won’t really impact your loans, right? Not quite.
Interest (if you’re paying it) is the worst way to splurge. Don’t pay more than you need to for a product, and if you buy it on credit, you are.
Recent reports found that the average credit card interest rate is around 16%.3 That means that if you make a $1,000 purchase and just make the minimum payments on your credit card, you’re actually spending $160 more on that purchase alone.
Now let’s consider how much you spend over the entire year, probably $30,000 for the average 20-something. If you purchase all of that on credit, you’re spending an extra $4,800 on all your expenses for the year.
That’s almost $5,000, which again is 20% of your average loan. If you decide to forego the new car and don’t spend money on credit card interest, you can have almost half of your loan paid off just through these simple two steps.
You also could put that money through an investment (where you’ll earn interest!), such as a retirement fund. Your future self will thank you!
In sum, it’s important to think carefully about your spending and use your money wisely. Don’t forget the future in the midst of your exciting new job and full-time salary. The sooner you pay off your loans, the more money you’ll have to save for your dream house or ideal vacation, invest, or save for your retirement and your own kid’s college education!
See the full article here.