Pay Off Your Student Loans by Budgeting in College

These days being a college student can be rough. Some days you finish work and receive your big paycheck, feeling on top of the world. Some days you are just getting by and can barely afford some Chipotle.

Trust me, we have all been there.  

On top of the fact that you need to feed yourself, you can just hear your student loans nagging you to pay them off before you graduate and officially enter your adult life. Frankly, you somewhat are excited and panicked because you don’t have a job ready for when you graduate and are facing around $40,000 in loan debt, according to the average student loan debt statistics released by Forbes. Whether you are undergraduate or a graduate student, money can often be a struggle.

The 50/30/20 Rule

No need to panic! We have a solution that you can start implementing right now in order to pay off your student loans, known as the 50/30/20 rule. Basically, you split your budget into these three slots and you should be set!

What is the 50/30/20 rule?

  • 50% dedicated to needs
  • 30% dedicated to wants
  • 20% dedicated to obligations

Basically, 50% of your entire budget, also known as your paycheck, should be going to your needs. Often, we spend our entire paycheck and assume we will make more money next time around so we should enjoy and live in the moment. Wrong! You need to start budgeting to prevent stress later on, which means you will have 50% of your paycheck to spend on needs. Needs are defined as expenses you need to pay to survive! This would include paying rent, books and supplies for school, groceries, or gas and transportation. College textbooks can be really expensive but you can often find great quality books online for way cheaper than your University Bookstore.

This budgeting method does not necessarily translate to never having fun. 30% of your paycheck can go to the things that bring you joy in life such as eating out with friends, traveling, and concerts. The 30% should go towards things that you want, I mean you worked hard for that paycheck, enjoy yourself, while still staying on the budget rule of course. My favorite app to use for sports events of concert is Gametime because you can get such great savings on last minute seats, straight to your phone.

The last 20% should be saved towards your obligations and savings. You should set up an account where you will put 20% of your paycheck. These obligations include savings for student loans when you graduate, your retirement fund, or overall emergency fund. Trust me, when the moment comes, you will be so glad that you won’t be homeless or starving because you stuck to your budget. Check out this list of top 10 best student savings accounts to see which one is right for you!

But, in order for this to work, you must stick to it.

Set up your direct deposit from your job to split into these three accounts to keep yourself on track. Putting your whole paycheck into one account will definitely make you forget about budgeting. I know that when I see a large amount of money in my bank account, the first thing I think is SHOPPING SPREE! But, if it is a small amount, then I’m more likely to stick to my budget and keep calm.

Let us know if you start using this method and how things go! Check out our other blog 5 Effective Steps for Millennials to Save for more tips on saving!!