Personalfinance tips

When you’re trying to save money, practice saving money right when you’re paid instead of spending first. You are always going to find ways to spend what you make every month, so you might as well save first so you have something to show after all that spending.

A good rule of thumb is not to borrow from your retirement accounts unless you absolutely have to. There can be tax consequences and penalties when you borrow from your retirement accounts that can make the transaction more costly than beneficial.

When you cosign a loan, you are the second party responsible for paying for the loan if the first party doesn’t pay. Unless you can afford to pay the loan yourself, don’t cosign.

Compare your debt to a few standard debt ratios. I learned these while studying for the CFP ® examination last year. In general, debt ratios to consider are:

• Consumer debt should be < 20% of net income
• Housing debt should be < 28% of gross income
• Total debt should be < 36% of gross income

Once you’re out of debt, make it a commitment to stay out of debt (this is especially important if you’re a spender). You can’t do anything about the debt you got into in the past, but you can avoid getting into more debt in the future.

Be careful using an income driven repayment plan to pay off your student loans. People love to recommend them, but the reality is that if you’re not repaying your loans at a rate every month that covers your interest, then your debt will increase over time. You don’t want to turn around in 20 years and owe double what you started with.

If you have student loans, pay them off. Student loans are not collateralized and cannot usually be discharged in bankruptcy. This means you’re most likely going to be stuck with your student loans unless you pay them off. If you qualify for a forgiveness program for working in public service, that’s also an option to explore. Get down to business now and make sacrifices so you can get out of student loan debt. It’s not “good debt.” It’s debt that needs to go away.

After you’ve explored retirement savings with your employer (or if you don’t have that option), look into opening up your own retirement investment account at a brokerage firm. Typically, this is in the form of a Traditional IRA or Roth IRA. To do this, you’ll need to use a brokerage account at a brokerage firm (I use Schwab, but there are many options). These accounts can give you added retirement investments and potential tax savings.