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Wealth Building Basics

Updated December 4, 2019

 

“Live like no one else will now so you can live like no one can later.” This Dave Ramsey quote is the epitome of what it means to be frugal early in life so that you can live comfortably all of your life. Most Americans dream of going to college, securing a great job, paying off their student loans, and eventually, building wealth and retiring happily. The problem is, we do not all know how to do it, and the idea of wealth-building often sounds lofty. However, like most tasks and new ideas, building wealth becomes approachable and feasible when you break it into easy-to-accomplish steps, such as these:

 

1. Acquire Wealth:


First and foremost, you need to start accumulating wealth by focusing on your income sources and your expenses in order to determine what your savings potential can be over the near term and long term.

 

How to Do It:

The wealth-building journey begins with your income. For those starting out, this is the first and most basic step. We have all seen graphs showing how saving a small amount of money each month can compound into substantial savings over time. In order for this to be possible, you must have and save a consistent amount of income over the next 30-40 years. The best course of action is to proactively secure a career that you enjoy and maintain a steady stream of earned income. Next, it is what you do with that income that really helps acquire wealth. Check out our list of salary calculators to figure out how much money you should be making

 

2. Save the Wealth:

After your basic expenditures are covered — like living expenses, insurance, and utilities — you should determine the income available for investment and establish a strategic savings plan. That savings plan can include a wide range of opportunities to save and may include: short-term or long-term savings accounts, investment products, and more.

 

How to Do It:

A dream job and smart investing can help generate money, but it is what you do with that money that matters. If your savings are not increasing, evaluate your expenses. Generally, financial growth occurs when your expenses do not exceed your target budget. It may be helpful to assess and track your outgoing spending for a month or two to create a visual layout, a roadmap of sorts, of where your money is currently going and where you could potentially be saving. At this point in your wealth-building journey, you should be taking a critical look at your financial health and deciding whether your expenditures are necessities, given your earnings. Sometimes, simply being aware of where the money is going at the end of the month can make a huge difference in budgeting. For optimal results, make routine contributions to your savings or retirement accounts. Pay your necessary bills, avoid excess spending, and set money aside for savings. Many will feel like it is too late to start saving. It is not. No matter how young or old you are, start saving your money today. If you need some help, check out our Best Apps for Budgeting in College (or budgeting any time).

3. Invest the Wealth:

Money makes money. Once you have accumulated some savings, you should start or continue to invest it, and then watch your fortune grow with time.

 

How to Do It:

Once you have started to conquer your budget instead of your budget conquering you — and your savings are consistently growing month by month, then you are ready for the investment stage. If you are not an experienced financial or investment professional, it can be beneficial to meet with a financial advisor to discuss asset allocation, goals, risk tolerance, and establish a personalized strategy. Your investment allocation will vary depending on your own wealth-building goals but can include stocks, bonds, real estate, and more. You can also obtain investment advice by utilizing online tools provided by websites such as Betterment.com, Wealthfront.com, or Acorns. If you want to put your own investment strategy to the test, Robinhood offers commission-free stock trading.

 

Final Thoughts

While the above steps are simple to grasp, implementation can often be a different story. Wealth-building calls for a strong level of self-discipline and restraint, but the efforts are well worth it when, in exchange, you attain a solid financial footing. People who develop wealth-building strategies commonly change their perspective on spending, and the first step usually involves a commitment to living within their means. This simple action can be the primary reason someone is able to begin building their personal wealth and enjoying it later. The path to wealth-building begins with a strategic and clear plan. You can find great success with wealth-building if you only follow your set plan and diligently execute it.

 

7 Money Mistakes Young Professionals Should Avoid

 

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Types of Student Loans

For many students, achieving their desired level of higher education requires some type of outside financial assistance. That financial assistance can come in the form of grants or financial loans. Due to the multiple types of loans available, many students opt to accept and welcome the assistance of student loans. According to the most recent data from The Institute for College Access & Success, 71 percent of students graduating from four-year institutions have student loans. The variety of student loan types make the process seem daunting, but educating yourself on the different types of loans will show that it is actually quite simple.

To help you understand more about the world of student loans, we started by highlighting the different types of student loans. Each loan type includes a brief overview, the average interest rates that could be expected (but are subject to change), and the amount of money you may be eligible to receive (also subject to change).

  1. Stafford Loans

Stafford loans are government-funded, federal loans that are dispersed directly to the student. Stafford loans can be either subsidized or unsubsidized. Subsidized loans will not accrue interest until after you have graduated or withdrawn from school. Unsubsidized loans will begin to accrue interest at a fixed rate as soon as they are dispersed, all the way until the loan is paid off.

  1. Perkins Loans

Like Stafford loans, Perkins loans are also government-funded, federal loans. However, they are all subsidized. Perkins loans are not as easily attained as Stafford loans. Due to the low-interest rate and subsidized nature of the Perkins loans, they are reserved for students who demonstrate “exceptional financial need.” The Federal Government allocates a limited amount of funds to each school. Once the funds are allocated the school determines which candidates will receive the loan.

  1. PLUS Loans

PLUS stands for Parent Loans for Undergraduate Students, but they are available to both parents and graduate students. PLUS loans have a fixed rate. Parent Plus loans are for parents with children in undergraduate school, while Grad Plus loans are available to graduate students. PLUS loans are federally-funded, but they have no maximum amount. PLUS loans can be used to cover additional costs not covered by other forms of financial aid.

  1. Health Profession Loans

Health professional student loans are specialized loans reserved for students studying in certain medical programs. Programs under this designation include the schools of dentistry, optometry, pharmacy, podiatric medicine, and veterinary medicine. The loan types vary in requirements and interest rates but are guaranteed low-rate loans.

  1. Private Education Loans

Private education loans are usually targeted at students and parents who have any additional, leftover education costs after they have obtained federal loans. Unlike federal loans, private loans are provided by private institutions and lenders. Similar to a personal loan, private loan rates are based on a borrower’s financial profile and credit score. As a result, these loans can be harder to obtain and typically have higher interest rates than federal loans.

Now that you know a little more about the major types of student loans, the average interest rate, and the loan amount you may receive, you can go forth with confidence into the realm of student loans.

9 Questions to Ask During the Refinancing Process

6 Actions to Take Before Applying for Student Loan Refinancing

Student loan refinancing options are growing at a historic pace, offering more opportunities to lower monthly payments and interest rates and reduce the cost of education debt. With an increasing desire to find a smarter way to pay off student loans, borrowers will undoubtedly embark upon the process with different needs and goals. Whether you are just now beginning to think about student loan refinancing, have done some research, or are ready to contact a lender, being prepared at the outset will go a long way towards streamlining the application process.

As education loan repayment options increase, choosing the right program can become somewhat daunting, so we have outlined the basics for you. Improve the likelihood of an efficient process — and approval with better rates and terms— by addressing these six concepts BEFORE applying:

  1. Do the Math

When comparing refinancing options, the first step involves gathering and making yourself aware of the interest rates and monthly payment amounts of your current loans. This is an important first step in the process, as it will help determine how much money you could save per month and over the life of your loan(s), especially if your loan were to be refinanced through a private lender, such as Education Loan Finance. Review the current interest rates on all of your education loans before refinancing, and consider whether excluding loans that already have low-interest rates, or consolidating your entire student loan debt into one loan with one monthly payment, makes sense for you. Fortunately, Education Loan Finance offers a convenient education loan payment estimator that easily calculates this information for each of its repayment options, allowing you to choose which loan term best meets your budget goals.

  1. Ensure Eligibility

Some lenders only work with borrowers who have a minimum amount of debt, attended a certain school, hold a particular degree, work within a specific career field, or reside in a particular state. Before you invest time preparing an application, review each lender’s requirements to ensure that you have met the basic criteria. For instance, to be eligible to refinance a student loan with Education Loan Finance, you must have:

  • A minimum of $15,000 in student loan debt.
  • Earned a bachelor’s degree or higher from an approved post-secondary institution.
  • A debt-to-income ratio that indicates a borrower’s capacity to repay the loan.
  • U.S. citizenship or permanent resident status at the age of majority or older.
  1. Review Credit Scores

Before applying, you should access (and save) your credit report to ensure that there are no errors or issues that may negatively impact your score. Doing this will help eliminate any surprises during the application process, but most importantly, a credit score review will help you determine if you need to start establishing better credit. Higher credit scores increase the likelihood of getting approved and receiving lower interest rates because lenders view borrowers with higher scores as a better investment. Under federal law, you are entitled to one free copy of your credit report from each of the three nationwide consumer reporting agencies every 12 months. For more information, visit www.annualcreditreport.com.

  1. Pay Down Other Debt

Reducing your debt-to-income ratio is a key element in receiving better interest rates and loan terms. For many individuals, simply reducing credit card debt before applying for student loan refinancing is a great way to improve credit scores and credit utilization possibilities. In addition, lowering your debt-to-income ratio may help you receive better interest rates and terms on a refinanced student loan. When lenders review your credit report, they are not only reviewing your repayment habits but also how much you owe and what types of debt you have accumulated.  Be sure to pay down any credit card debt — and any other non-student loan debt — as much as practicable.

  1. Gather Financial Documents

A fundamental part of the loan application process involves proving that you, the borrower, are able to repay your loans and hold true to your financial commitments. To do so, gather all pertinent information that proves payment history. While different lenders will ask for different documents, most loan applicants will have to provide their most recent paystubs, tax returns, list of loans and balances, and their student loan servicer’s information.

  1. Understand Federal Loan Details

Federal student loans offer certain options and benefits that many private lenders do not, such as deferments or forbearances that allow the borrower to temporarily reduce or defer payments if they enroll in school or experience financial hardship. When these federal loans are refinanced through a private lender, the borrower may forfeit some special benefits associated with them and should carefully weigh the pros and cons of each program before applying. Individuals who maintain established careers, with reliable income for the foreseeable future, are great candidates for private loan refinancing. On the other hand, someone intending to pursue a full-time, advanced degree may want to postpone refinancing while still in school in order to preserve the benefits of the Federal Loan Program.

The Next Step

Borrowers who have worked through the above steps are one step closer to an easier, smarter financial path– as well as a smoother application process! If you are now ready to apply for student loan refinancing, we want you to know we are here to help. The education loan experts at Education Loan Finance aim to be the leaders in educational financing support for financially-responsible college graduates, and we offer comprehensive options for consolidating and refinancing student loans. Best of all, our application process is streamlined, simple, and ready to help you with your financial future.

Click for Tips on Finding the Perfect Lender to Refinance Student Loans

How to Write a Monthly Budget

According to Dave Ramsey, a person’s biggest wealth-building tool is their income, and the best way to harness its power is to create a monthly budget.

Writing a budget is the first step — and possibly the most successful way — for a person to take control of their money, their finances, and pay off any outstanding bills (like student loans). In fact, most financial experts recommend that those who wish to save money for the future and any upcoming expenses, as well as pay down outstanding loans and bills, should create some type of a monthly budget. Most who find their way to this budgeted path will agree that writing and sticking to the budgeted plan can be painstaking — at first — but once it is in place, and they see the financial gains, it is well worth the initial trouble.

For those who are uneasy about writing a budget, are unsure where to start, or simply need a little push in the right direction, we are here to help. The following information is dedicated to helping first-time budget writers — with all levels of debt and income — find their ideal monthly budget. We hope it guides every reader toward financial freedom and independence!

How to Create a Simple Monthly Budget

Step 1: Calculate Total Income

Budgeters should begin their monthly budget process by figuring out how much they (and if applicable, a spouse or partner) bring home each month. Start by calculating the total take-home pay (after tax) for the household. This figure should include every ongoing source of income.

Step 2: List and Tally All Expenses

Step two involves calculating all regular bills (mortgage, utilities, student loans, credit cards, insurance, cell phones, etc.) and any irregular bills (quarterly payments like insurance) that are due the following month. The next step involves totaling what is generally spent on all other expenses: groceries, eating out, coffee, gas, entertainment, etc. Every dollar spent should be accounted for.

Step 3: Subtract Expenses from Income to Equal Zero

Subtracting total expenses from the total income will reveal how much each individual or household is (or is not) spending each month. Some financial experts suggest configuring this part of the budget to create something called a “zero-based budget,” where the total income minus all expenses (including any savings, loans, or investments) equals zero. This method ensures that money is told exactly “where” to go — into savings, towards paying down student loans, etc. — and therefore, cannot be spent in any other way. These free accounting forms and programs may help: Dave Ramsey’s Monthly Cash Flow Plan form or Dave Ramsey’s Irregular Income Planning form.

Step 4: Monitor and Track Expenses Each Month

Diligence and commitment are necessary elements of all financial budgets, and staying on track — and minding the original monthly budget — can be a hard task for even the most dedicated budget-master. To help those who are serious about their budget, or simply need a little extra accountability, special tracking tools, and apps exists to help users monitor and maintain their expenses. Here are some free options and community favorites:

  1. Write one down on pen and paper.
  2. Develop a personal Excel spreadsheet.
  3. The Envelope System. This system involves acknowledging and setting up categories in which a person usually overspends (eating out, clothes, groceries, etc.). Each month, money for these categories is cashed out (so money is not in the bank) and carried with the person in dedicated envelopes or clips. This enables each person to visually see how much money is being spent in each category, as well as how much money remains throughout the month.
  4. Dave Ramsey’s Every Dollar software and budget app is a quick and easy way to see what is planned for the budget, what has been spent, and what remains.
  5. Mint by Intuit is a well-known budgeting app that automatically tracks a user’s finances. Users simply enter basic financial information and the program tracks the rest. Other benefits include goal setting options and data that feeds into TurboTax at tax time.
  6. PearBudget is a really simple budgeting and expense tracking service. It contains common and customizable expense categories, is secure, and it is easy-to-use for first-time budgeters. Some may find it less automated than Mint, but users do get some extra goal setting and planning features. PearBudget costs $4.95 a month after a free, 30-day trial.
  7. Clarity Money is a free budgeting app that can also help you manage your finances and track your spending by recommending ways to lower your bills, manage your subscriptions, and get the best credit card deals.
  8. GnuCash is a fairly robust accounting software program that is both free and suitable for most operating systems — as well as home and small business use. Along with its ability to track income and spending, the software also tracks banking, investing, and retirement accounts.

Final Thoughts on the Monthly Budget

Saving money, paying down student loans, and getting out of debt takes time. With a plan and a dedicated budget, the journey can be much shorter and less stressful. When budgeting, it is also important to live reasonably and spend within — and possibly below — your means whenever possible. A generous cut-back on unnecessary and frivolous expenses is a necessary part of creating a budget, but remember that it is ok to live comfortably and have some fun every now and then. Just make sure some “fun money” is written into the budgeted plan so that these expenses do not hinder the main objective — getting out of debt and saving money.

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* Please note that we are not affiliated, getting paid to mention, or specifically endorse any of these budgeting products or programs.