The smart way to navigate your student debt
Student loans enable you to obtain a higher education without the need to pay upfront. But they also come with the burden of debt – a debt you may be required to start paying back now you have your first job.
In Australia, the government offers a helping hand to students with the Higher Education Loan Program (HELP), which includes HECS-HELP and FEE-HELP schemes. Instead of having to pay interest on your student debt, as you would other debt such as a car loan, you simply pay back the amount you borrowed after it’s been adjusted for inflation.
One of the perks of a student loan is the income-contingent repayment system. You only start repaying when your income surpasses $51,550. This means you won’t be burdened with repayments if your taxable income is below that amount.
If your finances allow, you may want to consider making extra repayments to pay down your student debt more quickly. However, many people prefer not to do this because they aren’t required to pay interest on the loan. Instead, they choose to use their money in other ways, whether that be saving for a house or investing.
Ultimately, whether you decide to make additional payments towards your debt is a personal decision that should be discussed with a financial advisor.
Why right now is the best time to start saving
When you get your first job, the first thought that comes to mind probably isn’t, “Wow, I’m going to save so much money!”
However, right now is the crucial time to start saving for your future. Saving provides a safety net for unexpected expenses, helps you achieve your goals and ensures you don’t run into financial hardship.
Here’s why it’s crucial:
- Financial security: saving ensures you’re prepared for life’s surprises, like medical bills or car repairs, without going into debt.
- Goal achievement: it empowers you to reach your dreams, whether it’s buying a home, taking regular holidays, or retiring comfortably.
- Compound growth: the earlier you start saving, the more your money can grow through compound interest.
A simple way to save for your future
The best way to start saving is to make it a non-negotiable part of your budget. In other words, include savings as a “need” in your budget rather than a “want.”
Keeping a separate savings account will go a long way in helping you stay within your budget too. You can use this account to set aside funds for special occasions, future goals and emergency expenses.
It’s best if you aim to save a specific portion of your income each month, even if it’s a small amount. It might not seem like much now, but over time this disciplined approach can lead to substantial savings.
A good rule of thumb to begin with is 10% of your after-tax earnings. However, you may also want to talk with a financial planner to get more personalised advice on your personal circumstances. Doing so will equip you with the necessary information and help you build smart financial habits from the outset, setting you up for future success.
For more information on how Poole Advisory can help you stay on top of your budget and improve your overall financial situation, get in touch today or book an appointment.
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This information contains general advice only, that is, advice which does not take into account your needs, objectives, or financial situation. You need to consider the appropriateness of that general advice in light of your personal circumstances before acting on the advice. You should obtain and consider the Product Disclosure Statement for any product discussed before making a decision to acquire that product. You should obtain financial or credit advice that addresses your specific needs and situation before making investment or borrowing decisions. Taxation information is based on our interpretation of the relevant laws as at 1 July 2018. While every care has been taken in the preparation of this information, Prosperitas Partners Pty Ltd does not guarantee the accuracy or completeness of the information. The case studies are hypothetical, for illustration purposes only and are not based on actual returns
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