Balancing paying off student loans against other financial goals and needs is a year-long task. That’s why an annual checkup is important — your money needs change as you change jobs, increase your assets, and embrace new opportunities.
Review Your Rates on Loans
Young professionals who are balancing loan payments should review the interest rates they are paying, says Cady North, chief executive of North Financial Advisors LLC in Washington, D.C.
Check our student loan calculator to compare your rates.
Set Goals for Your Savings
Develop goals about why you’re saving your money, whether that’s retirement, a house, or a vacation. “It’s not enough to make a plan to save. You have to figure out what you are actually going to do with the money,” North says. “Having concrete goals makes it much easier to stick to a plan, such as whether you would like to purchase a home, start a business, or start an emergency fund if you lose your job.”
Calculate Your Burn Rate
Determine how much you can realistically save after subtracting for housing, utilities, and other monthly bills. If you’re having trouble figuring out where all your money goes, find a way to log how each penny is spent. That’s your burn rate.
“Review the list and determine monthly what you could do without to decrease your expenses. Even if it means writing out on the back of the ATM slip what you actually used the cash for,” says Catherine Seeber, a principal at Wescott Financial Advisory Group LLC in Philadelphia.
Read more Make a Budget With These 5 Steps
Increase Your Savings Rate by 1%
If you got a salary raise last year – but didn’t raise your savings – it’s time to kick it up a notch by 1%. “You won’t notice the difference on your paycheck, and it can really boost your savings over the long term,” Seeber advises.
Review Your Insurance
“Your education and your ability to earn a living are probably your biggest assets at this point, and you should protect them,” says Harriet J. Brackey, Director of Investments at GSK Wealth Advisors in Hollywood, FL.
Disability insurance can protect you if you’re unable to work, and it will pay you a portion of your income. This ensures you’ll have the cash flow to do things such as pay your bills (and stay on track with your student loans, for example).
“Your education and your ability to earn a living are probably your biggest assets at this point, and you should protect them.”
You can also buy a plan on your own, which may be more expensive, but the benefit is that you can keep the plan if you change jobs, Brackey says. Moreover, any benefits paid are not taxable when individuals buy policies themselves.
Review Your 401(k) Contributions
Many individuals contribute up to their employer’s match for retirement savings, but that may be as low as 3% or 6%. Now it’s time to consider whether you can increase that amount.
“That is great if you are just out of school with your first job, but many individuals do not re-examine this amount once they are earning higher incomes,” says Anjali Jariwala, founder of FIT Advisors in Chicago.
Reconsider a Roth 401(k) or a Regular 401(k)
If your company offers both a regular 401(k) and a Roth 401(k), which one should you use?
For high-income individuals, it actually may make more sense to contribute to the regular 401(k) over the Roth 401(k) because of the tax savings, says Jariwala.
For those starting with more modest incomes, the Roth 401(k) may be a good way to go, Brackey says. “You probably don’t need the tax deduction now nearly as much as you’ll appreciate the tax-free withdrawals later,” she says.
While you’re under the age of 50, the maximum you can save in 2016 in either type of 401(k) is $18,000.
“The more you can put away earlier in life, the more time there is for growth, which can result in more money in retirement,” says Jariwala.