College is the new found freedom for many, as we get out of college into life’s reality of paying bills and lifestyle, we are most likely hit by the amount of debt that’s been accumulated on credit card and student loan.
Even with our new found income in our twenties we are more likely to spend more on clothes and entertainment and travelling than repaying debt or planning for retirement.
The earlier you start planning your retirement and prepare your road map for investment, the higher would be returns based on your strategy. At early age you also have the leverage of taking higher risk, which seems to be reducing with age, giving you the time to recoup any potential losses incurred.
Your to do list of financial planning could include the following priorities.
Prepare an emergency fund.
An emergency fund is a high interest paying savings account that you could rely on in case of unexpected expense like, medical, car repair. Start placing some money every month into this account, it could be as little as 10 bucks (3 coffees), if you don’t have spare cash to stash look for any creative ways to be frugal- cut bills or reduce your budget.
Be smart at credit cards
If anything that you want to do to get ahead in investing is to get rid of any credit card debt that you might have. Credit cards are good and ugly depending on how we can utilize them, personally I pay all my bills and shopping transactions through my credit card, this helps me to build points where by I could convert them to a gift card, while my money is working to offset the home loan interest.
Make it a habit to repay your credit card balance in full each month and shop around for a credit card deal that suits your needs. When I look for a credit card, my basic rules are it shouldn’t have annual fee and should be rewarding.
Repay student loan
You are naturally focused on gaining qualifications, establishing your career and enjoying your early income. If you are still holding on to any of those student loans it’s better to pay them off. The order of payment for any debt should be based on the interest rates, start paying off from highest interest rate charged account to the lowest interest rate.
Consolidate your student loans, there are a number of potential benefits to consolidating your student loans. If you have several loans, you may want to consolidate them after you graduate just to simplify your record keeping and bill paying. You may want to take advantage of lower interest rates, or the longer repayment period you get from consolidating. Consolidating may be a good option for you if you have heavy education debt, want to lock in at a fixed rate, or want to reduce your monthly payments and willing to pay more during the length of the loan.
Commit to your First home
There is some amount of regret in me that I haven’t purchased my home as soon I had the money for a deposit. There will always a debate on whether to buy or rent a home, but I can certainly tell that there are benefits in having a home loan- it enforces savings and if you buy your property in a growth suburb you will build equity with time.
Borrow to invest
If you have bought your first home, you could always use equity in your home to borrow money for investment. Borrowing money to invest is a high risk strategy, this strategy might suit you base on the age group as you have time to recoup any unseen losses.