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How Much of Your Income Should be Going Toward Rent?

August 20, 2018

You’ve got that first job or a new job. Maybe just got a raise or your moving to a new city, that’s awesome. You’re excited about this new chapter in your life and then you find, “woah, rent is really expensive!”  That’s likely what you’re saying as rising rent is outpacing income in most major cities in the country. So, what do you do? How much can you afford? How much should you pay? Well, you’ll find the standard answer is 30%, but it’s not that simple. Every situation is different and there are a lot of things to consider but don’t worry, you’ll figure it out and you probably don’t have to live in a van down by the river, unless that’s your thing.

How much are you really making?

First things first, you need to know how much you’re really going to be bringing home from that paycheck before you know how much you can really spend on rent. People often base their rent on their annual salary, which can really leave you hurting financially because they haven’t considered things like taxes, health insurance, 401ks and other deductions. Here is a good paycheck calculator to help you get to a more reliable number to work with. After that you need to calculate your debts, be it credit cards, auto loans or student loans.

Figure out what you really need.

This isn’t just a tactic to be really frugal, it’s pretty fundamental. Do your research. Know yourself, your habits and what’s realistic for you and the city you are going to live in. Living in the suburbs may be an attractive option because it’s cheaper, but maybe you don’t even need a car? Could walking and public transportation be enough to get you around? If you are moving to a new town or city that you’re not really familiar with, try and stay with a friend or rent an Airbnb for a couple of days in an area you’re considering. It can be a great way to prioritize what is going to be most important to you. You’ll often find that some things that seem like important must-haves could potentially be needless costs.

So, what’s the answer?

You’ve figured out your salary. You’ve weighed your priorities. If you’re like most people, you’ll find that the decision still isn’t easy. If you need something more concrete to avoid yourself financial heartache in the future, try following the 50/20/30 rule. That’s 50% towards the must-haves like rent, utilities, transportation, and food. 30% towards fun and 20% towards savings and/or paying off debt, like cars, credit cards, and student loans. As an example, the average rent in Manhattan, NY is $3,100 for a one-bedroom. In order for that to be a financially sound decision, you’d want your monthly take-home pay to be above $8,300. Using a rent affordability calculator is another great way to see if a particular rent amount would work well for your budget or not.

If all of this still sounds totally unrealistic to you then you may have to look to alternatives like having a roommate, especially if your situation is more temporary. If you know you’re definitely going to be staying somewhere for a while, you may be able to negotiate with your landlord or rental company for cheaper rent.  if you can commit to an 18 or 24-month lease. No matter what you decide to do, just make sure you give it some good thought. Save where you can and spend on what’s important to you.

 

Click Here to Learn About the 50/20/30 Budget

 

Supporting Articles:

https://www.apartmentguide.com/blog/percentage-annual-income-rent/

https://www.nytimes.com/2016/10/23/realestate/how-much-of-my-income-should-be-budgeted-for-rent.html

 

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2019-12-04
Tips for Starting Your Student Loan Repayment Journey

Once you graduate from college, leave college, or drop below half-time enrollment, it’s time to start thinking about when your student loan repayment period kicks in. Understanding the repayment process for your student loans is very important for a number of reasons – for one, if you don’t pay, your interest will accrue. Second, if you don’t pay, it will affect your credit score, which can hinder your ability to buy a home, buy a car, qualify for credit cards, take out a personal loan, or refinance your student loans.   If you graduated this past spring, your student loan repayment period will likely start around this time of year (if they haven’t kicked in already). Follow these tips to master student loan repayment and get yourself to a strong financial start after college.  

Know How to Access Your Loan Information

A good first step is to acquire your loan information. This can typically be accessed via an online login. Monitoring your loan information will be essential during the course of repayment. If you took out Federal Student Loans, you can likely access your info at https://myfedloan.org/. If you took out private student loans, check with your lender for how to access your information. Tracking your loans will give you a gage on the status of each loan, the balance you owe, as well as interest rates for each loan. By understanding the status of your loans, you can make more informed decisions about how you want to prioritize repayment, what type of repayment plan you want to choose, or even whether you want to consolidate or refinance your student loans.   

Know When Your Payments Start

Immediately following graduation, you’ll likely have a grace period, or a period of time before your first payment is due. This can vary depending on the type of loan you have, and they can be different for each loan. Subsidized and Unsubsidized Federal loans have a six-month grace period. Perkins loans have a nine-month grace period. There is no grace period for PLUS loans; however, if you are a graduate or professional student PLUS borrower, you do not have to make any payments while you are enrolled at least half time and (for Direct PLUS loans first disbursed on or after July 1, 2008) for an additional 6 months after you graduate or drop below half-time enrollment. Private student loans will have differing grace periods so contact your loan servicer for more details. Knowing when your loan will be due is imperative to starting off on the right foot when it comes to your student loans.  

Weigh Repayment Options

When you take out federal student loans and your grace period is complete, you will automatically enter the Standard Repayment Plan. This plan allows you to pay off your debt within 10 years, with the monthly payment remaining the same over the life of the loan. If standard repayment doesn’t work for your budget, you may want to consider some other options, or perhaps even refinance your student loans. The federal student loan program offers the following Income-Based Repayment plans: 
  • Graduated Repayment Plan – Gives you a smaller payment amount in the beginning and gradually increases the payment amount every two years.
  • Extended Repayment Plan – Allows you to pay the least possible amount per month for 10 to 25 years.
  • Revised Pay As You Earn Repayment Plan or REPAYE Plan – Bases the monthly payment on you (and spouse’s) adjusted gross income, family size, and state of residence.
  • Pay As You Earn or PAYE – Monthly payments are based on your adjusted gross income and family size. You must be experiencing a financial hardship to qualify. You must also be considered a “new borrower” as of 10/1/2007 or after, or be someone who received an eligible Direct Loan disbursement on 10/1/2011 or after.
  • Income-Based Repayment or IBR – Monthly payments based on your adjusted gross income and family size. Must be experiencing a financial hardship to qualify.
  • Income-Contingent Repayment or ICR – Based on your monthly adjusted gross income and family size. Typically chosen if an individual can’t qualify for the Pay As You Earn Plan or Income-Based Repayment.Any changes to your income or your spouse’s income will affect your student loan payment. For example, if your salary increases, your student loan payment will as well. If you are married, both your income and your partner’s income are combined. Two combined incomes will increase your total income, likely increasing your monthly payment. 
  Keep in mind that each repayment option will have positives, negatives, as well as eligibility requirements. Research each option before making a decision, and consider contacting your loan servicer if you have questions or need more information.   

Automate Your Payments (If you can)

Setting up automatic payments will make student loan repayment less of a hassle, will avoid late payments, and may even score you an interest rate reduction. Just be sure you have enough money in your account month-to-month to endure the payments without overdrawing.   

Make Extra Payments

When you make your monthly payment, it will first apply to any late fees you have, then it will apply to interest. After these items are covered, the remaining payment will go toward your principal loan balance (the amount you actually borrowed). By paying down the principal, you reduce the amount of interest that you pay over the life of the loan. Applying extra income by making larger payments or double payments will reduce the total amount you’ll end up paying.   

Reach Out for Help if Necessary

If you’re having trouble making your monthly payments, particularly on your federal student loans, contact your loan servicer. They will work with you to find a repayment plan you can manage or help determine your eligibility for deferment or forbearance. If you stop making payments without getting a deferment or forbearance, you risk your loan going into default, which can have serious consequences to your credit.   

Weigh Refinancing & Consolidation Options

If you have multiple student loans that are all accruing interest at different rates, you may want to consider student loan refinancing or consolidation to make repayment more manageable. The federal student loan program offers student loan consolidation, in which they combine your loans into one loan with a weighted average interest rate, rounded up to the nearest 1/8th percent. You can also consolidate your federal and/or private student loan with a private lender through the process of refinancing. Refinancing your student loans is much like consolidation, however it offers the opportunity to start new repayment terms and possibly lower your interest rate. Keep in mind that refinancing with a private lender may cause you to lose access to certain federal student loan repayment options that are listed above.   

Look Into Loan Forgiveness

If you work in a public service position or for a non-profit, you may want to consider the Public Service Loan Forgiveness program or another loan forgiveness program offered by the federal government. Other options exist for volunteers, military recruits, medical personnel, etc. Some state, school, and private programs also offer loan forgiveness. Check with your school or loan servicer to see if you may qualify for student loan forgiveness.  

Earn Your Tax Benefits

If you are paying your student loans, you may be able to deduct the interest you pay on your student loans when filing your taxes. Deductions reduce your tax liability, saving you money and serving as a nice tradeoff for having to pay interest on your student loans.    Repayment of student loans can be a long, difficult journey – but by taking advantage of your resources and staying determined to pay off your debt, it is manageable. If you need more information on paying back your student loans or the options that are available to you, contact your loan servicer.  
  Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.
2019-11-29
So I’ve Refinanced My Student Loans – Now What?

By Caroline Farhat  

Congratulations! You just made the big step of refinancing your student loans. Your wallet is fatter and you’ve likely shaved off thousands of dollars from what you will have to pay on your student loans. That’s a huge achievement that will positively impact your financial life.

 

You may be tempted to use your new found moolah on brunches and vacations, but don’t start spending lavishly quite yet. While present you may be saying “yes!” to fancy dinners, future you would really benefit from spending this extra cash in a smarter way. If you’re feeling financially empowered, you’ll love these five financial tips for what to do after you refinance to maximize your money.

 

1. Reexamine (or create) your budget

Any time you have a change in your financial situation, such as a raise or a new recurring bill, it’s important to evaluate your current budget. If you don’t already have a budget, getting a little extra money each month can be a great motivator to start one. We’re fans of the zero-based budget system. With zero-based budgeting, you allocate each dollar you make to a specific expense or goal so it can help curb unnecessary expenses you may regret later. For example, say you bring in $4,000 a month after taxes. You spend $3,000 on fixed expenses such as rent, utilities, and food. Your monthly payment for student loans is $600, leaving you with $400 extra each month. Under zero-based budgeting, you would allocate the extra $400 to other goals (such as contributing to a savings account) or wants (such as a travel budget). Once you have figured out exactly where each dollar will go, you should set up an automatic transfer to a savings account so that you never get tempted to spend money that you should be saving.

 

Of course, budgets aren’t one size fits all. If you have a method that works for you, then use that! The important things to know and keep track of are:

  1. How much money you have (after taxes and health insurance payments)
  2. Your essential fixed expenses (such as housing, utilities, food, student loan payments)
  3. Your non-essential fixed expenses (such as gym memberships, Netflix, etc.)
  4. Your long-term financial goals (buying a house, saving for a child, retirement)
  5. Your short-term financial goals (dining out, travel)
 

2. Start or pad your emergency savings account

If you don’t have at least three months of living expenses saved up, you need to start right now. We don’t want to set off alarm bells, but an emergency savings account is the number one thing everyone needs to have on their financial to do list. Depending on your situation, you may benefit from stashing away six to nine months of living expenses, but start with at least three months and build from there. Be sure to have this money easily available, so put it in a savings or checking account that does not incur any fees or penalties for withdrawing money. For example, you do not want to put your emergency savings in a CD, even if it will yield you a higher interest rate, because getting your money out can be a costly and sometimes time-intensive process. That said, find a savings account that will pay you interest so you don’t lose all your earning power on that money.

 

3. Pay down other high-interest debt

After you have a healthy savings account, paying off high-interest debt should be your next priority. Just like how refinancing your student loans helped you save money in the long run, paying off debt with high interest rates such as credit card debt or a personal loan will help you shave off hundreds or possibly even thousands of dollars that you would have to make in interest if you just paid the minimum monthly payment. Even putting an extra hundred dollars a month to this debt can pay off big time in the future. Additionally, lowering your debt load can help bolster your credit score, especially if you are carrying a lot of credit card debt. Your debt-to-income ratio is critical if you want to get a mortgage or other big-ticket items so paying down high-interest debt can only work to your advantage.

 

4. Contribute to your retirement

Say you have a healthy emergency savings, you’ve paid off all of your credit cards, and you have enough to cover your living expenses with a little bit of extra fun money. First, congrats! That’s a big feat and you’re killing it with your finances!

 

Set your future self up for success is by starting or increasing your contribution to a retirement account such as a 401(k) or IRA. Retirement accounts benefit from compounding interest so the sooner you start, the better. Plus, many employers have matching programs that help you pad your retirement account. Remember the free money you can make from a high-interest savings account? This is similar, but your future self will be the one to reap the benefits.

 

5. Treat yourself, responsibly

If you have refinanced your student loans, it’s safe to say that you’re clearly on top of your financial game. Let’s be real -- there will always be a list of things you can and should do with your money. But it shouldn’t all be about the work. You deserve to treat yourself! Just be sure to do it responsibly. Should you suddenly move into a budget-busting luxury penthouse apartment? Probably not. But you absolutely should treat yourself to that nice dinner or new pair of sneakers you’ve been eyeing. The keys to a successful financial life are staying informed and staying balanced. Just like any other goal, providing little rewards along your journey can help you stay motivated. So take this as our encouragement to enjoy yourself! Just do it responsibly with an eye on your financial independence.

   
2019-11-27
3 Things You Should Know About Black Friday

Black Friday used to be just one, crazy day of shopping. Deal seekers would wake up before sunrise, grab a thermos of coffee and a warm jacket, and wait in line for hours to get the best deals on televisions, laptops, and Cabbage Patch Dolls. The desire to shop and save is so popular that Black Friday has spun off nearly a week’s worth of celebrations, including:

 
 

Black Friday itself has even crept into our day of gratitude, with stores opening just after the dishes are cleared on Thanksgiving night. Some brands and shoppers have pushed back against Black Friday, like REI with their #OptOutside campaign that provides an active alternative to malls and box stores. But for many, the excitement of Black Friday is as much a part of Thanksgiving as turkey and pumpkin pie.

 

For those who are on the hunt for the best deals, here are a few tips to help you succeed.

 

Make a List (and Check It Twice)

While this tip is true for nearly every shopping trip, you definitely need a list, plan of attack, and even a budget for Black Friday. What items are your absolute must-haves? Are you more of a big-ticket item shopper or are you in it for smaller deals on everyday items? Just as you need to plan out that Thanksgiving dinner menu, sit down and list where you want to go and in what order to keep yourself from impulse buys and overspending. There’s no worse feeling than getting home and realizing you wasted money on something that wasn’t really a good deal or that you didn’t even want. Consider the following for your list:

 
  • Category
  • Item
  • Store or URL (for online Black Friday deals)
  • Deal or Coupon Code
  • Price
  • Budget Countdown
 

Shop Online

Cyber Monday used to be the online shopping day of the holiday season, but Black Friday is king for a reason and quickly expanded in-store-only deals to the online crowd. Shopping online helps you cover more territory in less time, and there are apps that can help you organize and simplify your shopping efforts.

 

With the BlackFriday.com app, you can easily filter through Black Friday promotional clutter, search by keywords, compare deals at different retailers, share deals with friends, and even set up notifications for when sales start. With the TGI Black Friday app, you can set up alerts if one (or more!) of your big-ticket items go on sale before Black Friday. This app also has a shopping list feature so you can digitize your plan of attack.

 

Shop All Year

For decades, Black Friday has gotten a reputation for being the deal day of the year. The name “Black Friday” even dates back to the 1960s when it was first used to name the kickoff to the holiday shopping season. However, it’s not always the best time of the year to get the best deal on several key items.

 

Televisions frequently go on sale just before the Super Bowl to appeal to fans looking to see the biggest game of the year on a new screen. On the hunt for a smaller electronic device? iPhones are typically discounted in September after the annual Apple event announcing the latest models. What about a new set of skis for the slopes? The best time to shop can be just before the end of the ski season, as retailers look to clear out inventory. And for more of the homebody, home goods are often discounted around holidays like President’s Day, Independence Day, and Labor Day. Finally, if you are ready to kick off the new year in a healthy way, consider waiting until June or July to buy that gym membership. At that time, gyms are eager for sales since clients are outside enjoying the long, sunny days of summer.

 

Find Other Ways to Save

You don’t have to brave the weather and the crowds to save money before the holidays. If you have student loans, you can keep money in your account by refinancing or consolidating. ELFI customers reported saving an average of $309 every month and an average of $20,936 in total savings after refinancing. See what kind of savings you can qualify for at elfi.com/refinance-education-loans.

 
 

1Average savings calculations are based on information provided by SouthEast Bank/Education Loan Finance customers who refinanced their student loans between 8/16/2016 and 10/25/2018. While these amounts represent reported average amounts saved, actual amounts saved will vary depending upon several factors.

 

Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.