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Zero Based Budgeting

A budget is the most important aspect of your finances. Whether you make $20K a year or $200K; you need to have a plan for your money. If your personal finances were a business and you didn’t keep track of your annual income and expenses, you’d have to close up shop pretty soon. There are dozens of budgeting methods and, in truth, one is not better than the other. The budget you choose is a matter of preference, and as long as you stick to it, you can theoretically reach any financial goal you could conjure up. Let’s take a look at zero based budgeting and if it is the right budget for you.

If you’re like most recent grads, you’re still getting a handle on your finances, likely juggling student loan payments, low starting salary, and a few vague ideas of what you’d like to see in your financial future. As such, many shy away from a budget, believing their financial troubles to be out of sight, out of mind. Unfortunately, money doesn’t work this way, and if you don’t take control of it, it will almost certainly take control of you.

Zero Based Budgeting

Because mindless spending is such a common pitfall, the Zero-Based Budgeting method has become widely used. The point of zero-based budgeting is to assign every dollar of your income with a task so that you avoid careless spending. In theory, if you have a comprehensive budget that accounts for everything BEFORE each month begins, you shouldn’t have any cash left over to waste throughout the month.

When you look at your monthly income, you should have a very finite number to work with. Acting like it’s an arbitrary number is the same thing as saying you have about 24 hours in a day. You have exactly 24 hours in your day, and you have exactly X amount of income every month. How you choose to spend those hours is completely up to you and the possibilities are limitless, just like your finances.

The zero-based budget balances a diligent tracking of last month’s expenses with a mindful forecast for next month’s. Because it takes some thorough crafting, you shouldn’t expect to nail this in your first couple months, nor should you anticipate it being a one-and-done deal. By design, it will need to be flexible, like extra cash for your A/C bill in the summer or holiday gifts at the end of the year.

Name every dollar

You have to give a name to every dollar coming in the door so that it has a specific purpose when it goes out the door. If you can’t, that’s a great indication of where your mindless spending is. If you’ve accounted for every foreseeable cost and still have a couple hundred bucks floating around aimlessly, add them to your emergency fund or investment portfolio. Shave $100 off your electricity bill in the spring? Stash it away in your holiday fund for a colder day. Find $20 on the street? Ok, that’s pretty rare so you’re off the hook on this one.

Think before you swipe

Look, the point is – be mindful with your money. You’re smart. You’ve lived enough life to know your spending habits, and sure, maybe you have some bad ones here and there. But ignoring them is not going to make them disappear. That’s why enlisting a proper budget will draw attention to the problem areas and empowers an opportunity for change.

 

6 Financial Independence Blogs You Should Read

Forgo Deferment & Forbearance on Your Student Loans

It’s tough to cover a mortgage, wedding, new baby, or medical expense on top of your student loan payments. As such, it can be tempting to request deferment and forbearance on your student loans. Before you apply for these options, be sure to understand the hidden costs that can lead to a much higher, much longer repayment down the road.

Both federal and private student loan programs offer deferment and forbearance options. These options provide you with temporary relief from your burdensome monthly payments and may seem like a good option to avoid a delinquency or default. Think again. Not making payments during your deferment and forbearance periods results in the capitalization of the interest you owe, meaning your loan principal will subsequently increase. Voila! Not only have your monthly payments ballooned when you inevitably start making payments again, but you now owe way more than you did when you first took out the student loans!

Deferment

Deferment is pushing back payments due to a temporary situation and your loan provider has a list of qualifications. The most common types are In-School Deferment, Graduate Deferment, and Military Service Deferment. For Parent PLUS Borrower loans, it is only available to parents who received Direct PLUS Loans or FFEL PLUS Loans. The deferments listed below are available to Direct Loan, FFEL Program loan, and Perkins Loan recipients only as per the Federal Student Aid government website. Types of deferments available differ based on your education loan lender, but there are commonalities between all private student loan debts. According to US News, private lenders can offer deferment relief for up to 6 months, or in extreme cases 12 months.

Federal Student Loan Deferment Types

  • In-School Deferment Request
  • Parent PLUS Borrower Deferment Request
  • Graduate Fellowship Deferment Request
  • Rehabilitation Training Program Deferment Request
  • Unemployment Deferment Request
  • Economic Hardship Deferment Request
  • Military Service and Post-Active Duty Student Deferment Request

It sounds like a great deal, but remember – you’re increasing the principal balance of the loan and prolonging the inevitable. Let’s say that you chose to defer your loans. As per MarketWatch, the average undergraduate student comes out with $37,000 in student loan debt. Think the cost of an undergrad degree is a lot? The average cost for a law school student that graduated from a private college is $122,158 according to Forbes. Even more unbelievable is the average Medical School Debt at $189,165 as per Modern Healthcare. Check out our chart below to see the hidden costs associated with deferring your student loan payments. Calculations as per those listed in College Reviews.

Undergraduate Deferment Loan Costs

Total Loan Cost Interest Rate Deferment Period Loan Length Total Debt After Deferment Total Increase in Debt
$37,172 8.25% 12 months 10 years $40,238 $3,066
$37,172 8.25% 24 months 10 years $43,305 $6,133

Graduate Deferment Loan Costs

Total Loan Cost Interest Rate Deferment Period Loan Length Total Debt After Deferment Total Increase in Debt
$140,616 9.50% 12 months 10 years $153,974 $13,358
$140,616 9.50% 24 months 10 years $167,333 $26,717
$161,722 9.50% 12 months 10 years $177,085 $15,363
$192,449 9.50% 24 months 10 years $167,333 $30,727

Forbearance

Financial responsibility starts with taking charge of your financial obligations and developing a sound monthly budget. However, what happens if you unexpectedly lose your job or are unable to work due to medical reasons? You suddenly find yourself in financial hardship and may turn to your student loan provider to seek forbearance options.

Similar to deferment, each loan provider and loan type has a unique set of guidelines to qualify for forbearance. Unlike deferment, forbearance could potentially affect your credit. The guidelines for qualifying for forbearance are different for the federal and private student loan programs, so check with your loan servicers and lenders to determine what forbearance options are available. According to the Federal Student Aid site, there are two types of Forbearance for Federal Student Loans- General and Mandatory.

General Forbearance

According to the government Federal Student Aid site, General Forbearances are used when you cannot make a monthly payment. Direct Loans, FFEL Program loans, and Perkins Loan borrowers qualify for this type of forbearance. Types of General Forbearance as per the Federal Student Aid site.

  • Financial difficulties
  • Medical expenses
  • Change in employment
  • Other reasons acceptable to your loan servicer

Mandatory Forbearance

If you meet the requirements for this type of loan, your loan servicer is required to grant you forbearance. Mandatory forbearance is only provided for 12 months. If you still qualify at the end of the 12-month period, you must resubmit your information. As per the Federal Student Aid site, here are the types of Mandatory Forbearance:

  • Medical or Dental Internship/Residency, National Guard Duty, or Department of Defense Student Loan Repayment Program – (Direct Loans and FFEL Program loans only)
  • Student Loan Debt Burden (Direct Loans, FFEL Program loans, and Perkins Loans)
  • AmeriCorps Forbearance (Direct Loans and FFEL Program loans only)
  • Teacher Loan Forgiveness Forbearance Request) (Direct Loans and FFEL Program loans only)

Once you qualify for forbearance, there may be a time period in which you may need to reapply in order to continue receiving benefits, as well as a maximum time they’re available. Keep making your monthly payments until forbearance is granted by your lender, as a delinquency on your monthly payments can result in a negative hit to your credit score. Just like deferment, most student loans in forbearance will accrue interest which gets capitalized and added to the principal amount of your loan. Therefore, this seemingly attractive option to postpone your monthly payments during an unexpected financial hardship ultimately further enslaves you to your student loans.

Although deferment or forbearance may seem like a tempting option, it isn’t always the best path forward. Making even a partial monthly payment is better than making no payment at all. Watch your budget closely and get creative with the steps you can take to avoid deferment or forbearance.

Refinancing your student loans is another great option to consider, just be sure to find a reputable lender like Education Loan Finance. By consolidating private and federal student loans into one monthly payment, you may be able to reduce your student loan payments enough to help you afford that wedding or down payment on a home.

 

Our Simplest Guide to Student Loan Refinancing

Empowering Those with Student Loan Debt

In case you’ve been living on the moon and were unaware, student loan debt has substantially amplified in the last few years (about 70% percent from a decade ago*). With the cost of college and universities increasing every year, students depend on larger loan sums than those from past generations. Student loan debt can not only soak up additional funds for investments but can subsequently hinder you from achieving financial goals like a dream wedding or the purchase of a home.

At Education Loan Finance, it’s our mission to provide flexible payment methods and offer resources to encourage and educate borrowers on being responsible. We want to empower that bright future, which is why we’re are excited to announce our “Empowering a Brighter Future” Video Contest! **

 

Click Here to See Our Winning Video & Learn About Our Winner

 

* http://www.businessinsider.com/americas-student-loan-debt-facts-2017-4

**Empowering a Brighter Future Video Contest. NO PURCHASE OR PAYMENT NECESSARY TO ENTER AND WIN. Open to U.S. citizens and permanent resident aliens over the age of majority in their state of residence. VOID WHERE PROHIBITED. Entries accepted from June 4, 2018, until July 29, 2018. Public support phase from August 6, 2018, until August 19, 2018. Final winner selection August 28, 2018. Subject to Official Terms and Conditions at Empowered by ELFI. Sponsor: SouthEast Bank. Promotion is in no way sponsored, endorsed or administered by, or associated with, Facebook or YouTube.