As a new grad, the large weight of student loan debt can be daunting. You’ve started your career, you have to pay off your loans, but you’ve also been told that you have to save money effectively. We sat down with Dr. Matt Geller, OD, Adam Cmejla, CFP, and Gary Topple, CPA at Vision Expo West to discuss how to juggle your financial responsibilities and goals.
Before you begin thinking directly about paying off loan debt and saving for the future, Gary Topple has some key information regarding student loans and your taxes! “The IRS allows a $2500 deduction as an adjustment to your income (meaning you don’t have to itemize your deductions to take this) for student loan interest. But if your income is between $60,000 and $80,000 per year as an individual (if you’re married, this number rises to $130,000 and $160,000), that deduction is reduced to $0.
“If, for example, you are in debt for $130,000 and you are making less than $60,000 per year while paying that off, you’re in more trouble than you think. That $2500 deduction won’t mean much to you anyway.”
Adam wants to remind everyone not to “let the tax tail wag the financial planning dog,” meaning you need to get ahead of planning now! Both agree that the best way to do that can be summed in one word: budget.
How do I budget properly?
In the same way that good business owners will calculate how much they expect to make, their expenses, and their net income, you need to take your income, minus your expenses (both fixed—rent, mortgage, loans—and variable—entertainment, vacation, and your $5.35 chai latte) and understand what kind of lifestyle you can support.
Ultimately, you have two finite resources: time and money. Allocating those resources will determine how you handle any of your saving and spending habits. Two major things that will contribute to allocating those resources for everyone are your priorities and your emotional capacity to handle debt.
As soon as you can, set both qualitative and quantitative goals that you want to accomplish. You may have a laundry list—pay off debt, start a family, buy a car, buy a house—but stop and think: if you could only afford one, what would it be? Your next step from there is determining which two you’d take if you could only afford two and so on. You didn’t get into debt overnight, and you won’t be able to get out of debt overnight, but strategizing will set you on the right path.
Financial, mental, and emotional health
Mentally and emotionally dealing with debt is another layer to handling your student loans. Adam refers to it as the “pillow factor.” While you can’t calculate it using financial equations, consider how confident you need to be, when you go to lay your head on your pillow at night, about where your money is and how you’re spending it. While some ODs may take 25 years to pay off their student loan debt, many others feel confident in committing to what Adam refers to as “stacking, starving, and saving.”
Obviously, these are ends of a broad spectrum, but folks who opt to stack, starve, and save are often living in a dual-income household, surviving on the lower income’s household and throwing almost 100% of their incoming higher income earnings toward student loan repayment, but they’ll be debt free in a few years, paying off well over $250,000 in student loan debt.
Trained and trusted financial professionals can be invaluable in guiding the financial conversation in situations like these. Folks who are equipped to navigate the goals and expectations that come along with handling their clients time, money, and goals can lend a helping hand.
OD to OD: Dr. Geller’s financial journey
“Starting out, I had very ambitious goals, so for me, paying off student loans early and saving very early wasn’t at the top of my list. The first thing that I did after graduating was having at least six months worth of income saved in an emergency account…and that’s something I maintain year round.
It all comes back to the fact that I have an idea of where I’m going to end up down the line, I’m confident in it…
“The next thing was making sure I had enough cash in the bank to put back into our businesses should we need that cash. Having that money there in case the business was stable in a pinch was another really important thing for me.
“From there, I was able to consolidate some of my student loans, and I was able to get a better interest rate. Once that happened, and I had my other priorities completed, I was able to budget with the new cash flow. I could say ‘okay, now I can put $1000 a month toward my loans,’ or ‘when I get this type of payment from the company, I’m going to put $10,000 toward them.’
“It all comes back to the fact that I have an idea of where I’m going to end up down the line, I’m confident in it, and I’m willing to take risks because I have a very high-risk tolerance for my own ideas.”
Everyone’s financial plans and goals will look different, and the most important thing to do is to find the structure that works for you. Finding a Certified Financial Planner can help you get on your track as soon as possible!