Part 1: Budgeting (Micro-level)
If you’re not already budgeting through budgeting apps like Mint or your own Excel spreadsheet there are a few major reasons why it’s wise and necessary to start ASAP:
- You get a thorough understanding of your financial situation: money coming in and money coming out every month
- Gives you a framework to live within your means
- Knowing what spending areas you need to rein in
- Having a roadmap to achieving your financial goals
Two Approaches
Budgeting is an ongoing process that’s meant to give you a detailed look into how much money comes in and out of your finances. As you assess your financial situation through budgeting you’ll begin to see a clearer path on what you need to do to achieve your financial goals, one of them being to pay down your student debt. I look at tackling this large financial burden by approaching the solution in two ways:
- Cutting your expenses
- Increasing your income
Everything should fall under these two categories and your strategy to paying off your student debt will involve tackling either one or tackling both.
Weak areas in your budget will also emerge in terms of spending too much in certain areas. Find ways to trim your expenses where you can so you’re able to put more towards your loan payments. An expense definitely worth exploring other options is your car/home (rental) insurance. Shopping around can potentially save you hundreds of dollars a year. Those savings, along with some other tweaks to your budget can have a sustained positive impact to your budget. Can you cut out cable or downgrade the service? Do you have any subscriptions that are rarely used that can be canceled? What about eating out less? Changes like these in your spending and applying those savings can help pay down your student loan debt more quickly.
Additional Recommendations
Lastly, as you become more aware of your finances I highly recommend that you do two things if these apply to you:
- Build your cash reserves for an emergency savings
- Focus on paying off debt with higher interest, like credit card debt
If and when unexpected medical expenses come up or your car is having issues, you’ll be glad that you have something set aside for them. If you have to tap into your emergency savings, keep contributing to it to replenish what you’ve spent and build it up to at least having 3 (preferably 6) months worth of living expenses.
For those who want to increase your income, we’ll take a deeper dive in the next article of this series. Increasing your income will be the most significant way to pay down your debt as quickly as possible while lowering the overall amount you’ll end up paying in interest over the life of your loans.
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AlumSum is on a mission to be the best student loan management tool you need to stay on top of all your student loans and save you time and money on paying them down. Please join our email list here to become one of our first users. When you sign up you will also get a link to a sample Google Sheet Budget that’s based on my own personal monthly budget. You can copy and save the sample, then change the categories of expenses to better suit your situation. If you’ve never budgeted before, it’s a great first step on seeing where your money is going.
Thanks for reading and stay tuned,
James Y Kim
Founder of AlumSum
