When Catherine Richard graduated from college in May, she was in for a reality check. She owes the federal government $24,000 in student loans. She also owes $14,000 to her parents, who are giving her until she turns 26 to start making payments. On top of that, she has about $13,000 in credit card debt.
Richard earns $37,500 a year working as an assistant account executive at a public relations firm in Milwaukee and lives with her parents to cut down on rent. But she doesn’t let her entry-level salary keep her from pursuing her financial goals: She’s been saving money and is on track to buy a house early next year.
Richard’s financial situation isn’t ideal, she admits, but she shows that it’s possible to achieve financial goals on an entry-level salary — even if you have student loans.
Keep your budget simple and realistic
If you don’t know where to start, the 50/30/20 budget can be a good jumping-off point: Put roughly 50% toward needs, 30% toward wants and 20% toward savings and debts.
Certified financial planner Jason Reiman advises his clients to not skip out on the “fun stuff.” But he recommends setting aside a more conservative 15% of your monthly income for fun or personal expenses. That’s a good minimum to avoid budget burnout.
“Far too many people try to cut that down to nearly nothing and then fall into denial about their true spending,” he says.
Get your priorities straight
Retirement may seem too far off to accommodate in your entry-level budget, but new grads are at a huge advantage when it comes to saving for their golden years, thanks to compound interest. If, for example, you started saving $200 a month when you turn 25, you’d have about $528,000 by the time you turned 65, assuming a 7% interest rate. But if you started saving $300 a month when you turned 35, you’d end up with about $160,000 less.
The same kind of thinking should apply to managing your debt, because compound interest can work against you, too. Revolving debt, like carrying a balance on your credit card, can sneak up on you if you’re not careful. Credit cards usually carry a much higher interest rate than student loans and stretch out small purchases over months. Richard, for example, pays $350 to $400 a month toward her $13,000 of credit card debt. That’s money she could be using to pay off her student loans faster.
Consider getting a side job
While the gig economy isn’t always what it’s cracked up to be, it can be a great way to make extra cash if you’re willing to hustle. And that doesn’t have to mean driving for Lyft or building websites on the side. Danielle Tackoor, a recent graduate who makes $38,000 a year and owes $103,000 in federal loans, focuses on taking one-off jobs like baby-sitting for family friends and bartending at parties.
If you’re still strapped for cash and have federal student loans, look into changing your repayment plan. Depending on your circumstances, you could pay as little as $0 per month.
Track your progress
Since your student loan payments will initially go more toward interest than your principal balance, it’s easy to feel like your efforts aren’t making a difference in your debt. But knowing how your money is being applied to your accounts and recognizing the small wins can help alleviate that feeling of being trapped in student debt.
“I actually made an Excel spreadsheet with all of my credit cards and all of those minimum monthly payments and balances. So every time I make a payment, I can see the balance go down a bit,” Richard says. If you prefer something more automated, there are tools, like NerdWallet’s debt dashboard, that let you sync all of your accounts and track your progress as you pay down debt.
Once you see your efforts start to pay off, it’ll become easier to stay on track.