Last month I attended Transform Philly Church‘s Money Workshop For Women, in West Philadelphia with Bola Sokunbi of CleverGirlFinance.com presented. I was glad to have the opportunity to attend to support my Personal Finance Friend, Bola, and visit my old stomping grounds of West Philadelphia.
The 2-hour workshop presentation covered Money Mindset, Budgeting for Greatness, Investing and Building Real Wealth. And there was a room full of attentive attendees, keen on learning all Bola had to share about building wealth. On a Saturday morning at that, these women were not playing! It was so great to see!
There was particular interest in investing and learning more about index funds, as well as, understanding and managing student loans and getting rid of debt.
During the Q&A portion of the workshop, Bola invited me to chime in on paying off student loans and making a plan for your money, in order to reach your financial goals. Of course, I happily jumped at the chance to join in!
Here’s a summarized version of the Q & A portion of the workshop.
Money Workshop For Women
Questions & Answers
Money Question 1:
Can you buy index funds within your 401K?
Money Answer 1:
Bola: What you have available to purchase within your 401K is dependent on your company. Companies usually create an agreement or plan with brokerage firms. Based on whatever agreement they structure, with the brokerage firms, 401k’s may offer one mutual fund, or ten.
What you have available to purchase within your 401K is dependent on your company.They offer they may offer individual funds, they may offer index funds, they may offer a Roth option. It just depends on your company.
You can buy index funds through a brokerage. My favorite brokerages are like Vanguard or Fidelity because they offer great customer service and I really like them.
Melisa: Another thing is that you can talk to your company’s HR, like Bola suggested during her presentation, to ask about getting more information regarding what type of funds are available within your 401k and then your HR department can tell you whether there are index funds available within your 401k.
Keep in mind too, that if your employer provides a match on your 401k contributions and you have contributed to a level to get that match, and you still want to save more, you can open you own Roth IRA, with Vanguard for example, and then Vanguard would have more options and you can be in control of what you invest in.
Bola: You can invest outside of your 401k, but the recommendation is that you get the full employer match then go outside.
Money Question 2:
For Melisa, what I want to know is, in terms of student loans, I am just intrigued about how you managed to pay off so much, save for a home. I am curious as to how you stayed disciplined to budget?
Money Answer 2:
Melisa: Like Bola covered, it starts with your mindset. I graduated with $68,000 of student loans and just looking at my big picture, I had no money but I had all these loans. I knew that this was something that I wanted to get rid of, but also invest and save for a home one day.
My mindset, from the beginning, was to figure out how to pay as much as possible towards the loans. I started out with a plan that I would pay off all my student loan debt in 3 years, but life happens, and I ended up paying off $37,000 in 5 years, and I still saved and invested.
My mindset. from the beginning, was to figure out how to pay as much as possible towards the loans.One thing that I did when I finished school is keeping my expenses low. In general, your “must have” expenses should typically be less than 50% of your income, but I knew I had all these loans, so I kept my “must have” expenses much lower than 50% of my income.
I did not get any new or financed cars. I got a used car that I paid $6,000 for and I kept that car. By keeping my expense low, I had more money to allot towards savings and debt payments.
When I started my first full-time job, I made sure I did not even know how to live on 100% of my income. One of the first thing I did was sign up for my 401k. I also had the option of a Roth 401k, so I was investing in both automatically. Then I determined what amount I would put towards my student loans and told myself that even though I like to travel, I will have to just do road trips only. I had to ask myself what are my values and one of my main values was to get out of debt.
By keeping my expense low, I had more money to allot to savings and debt payments.
That meant that I was committed to not getting a new car, even when my car got totaled, I got another used car. I was very conscious of what my goals were, automated my finances and saved my raises instead of inflating my lifestyle. I chose to stay in the same apartment I had and commit more money to savings and pay off more debt.
This is how I was able to buy a home, even when I was not done with paying off my debt.
Money Question 3:
If I have debt, should I be saving? Should I be contributing to my 401k, if I still have debt? How do you decide?
Money Answer 3:
Bola: I am of the opinion that you can save and pay debt, that’s my philosophy. Dave Ramsey, who I love, will tell you to stop saving for retirement, save $1,000 in your emergency fund and put, everything you can, towards paying off your debt. I think that you have to save for retirement, no one is going to prepare for your retirement for you. At the minimum, put that $1,000 emergency fund there, do that. If you are employed and you employer offers a company match for retirement savings, get that match. To me, it doesn’t make sense to forego the employer match.
If for example you contribute 10% toward retirement and get your employer match, then save $1,000 for an emergency fund, keep saving for retirement and then get aggressive with your debt. If you are going to sacrifice not saving anything else, you need to get aggressive with your debt. The quicker you pay off that debt the sooner you can come back to savings. And it’s important that you come back to that savings. If your goal is just to pay off debt here and there and you are not going to save any money, then you are wasting your time. You need to get aggressive with paying off your debt and that means, paying off as much as you can, as quickly as you can.
You need to get aggressive with paying off your debt and that means, paying off as much as you can, as quickly as you can, to destroy that debt. If it is a 2-year plan, or a 3-year plan and you know at the end of that plan you will be at zero debt, then
You need to get aggressive with paying off your debt and that means, paying off as much as you can, as quickly as you can.When you consider the interest rate that you pay for your debt, it doesn’t make sense when it compares to savings in a bank account. But you retirement is an investment, it’s not like savings in an account at less than 1%.
So again, establish your emergency fund, fund your retirement and get aggressive with your debt.
Melisa: To piggy back on what Bola says, when it comes to investing in your retirement and you are getting an employer match, why would you miss out on that employer match when paying off debt, when you could choose to get an extra job to put towards debt payments.
Also, think about whether choosing to stop saving for retirement will make your debt payoff period shorter by two years or more. Consider if it will be worth it for you to forego saving for retirement if it will not help you pay off your debt in less than a year.
Bola: Think about the fact that your contributions to you retirement plans, 401k or 403b, is pre-tax, so if you were to use a take home calculator, you will see that by the time you are taxed 25% – 35% you will have less than what you would have contributed to your retirement to put towards your debt.
Money Question 4:
Any advice for high school senior going to college?
Money Answer 4:
Bola: Sit down with your parents and have that discussion about paying for college. Once you go to college, when you go to the job fairs do not sign up for any credit cards, under no circumstances. Get a part-time job and start saving your money, your friends are going to want to go out and have fun, and that’s okay, you can spend a portion, but think about saving half of your paycheck and putting it aside until the foreseeable future and not spending any of it.
Just start developing the habit of savings and not signing up for any credit cards.
Money Question 5.
What should I do to get a handle on my student loans that are in the post-graduation grace period?
Money Answer 5:
Melisa: The first step is to make sure you know that you have all you loan information. Check your credit report for private student loans and the National Student Loan Data System for Federal student loans. Prioritize your private student loans and for your Federal student loans figure out which of them are accruing interest during the grace period.
Depending on the amount of interest that accrues during the grace period, you can contact the student loan service and ask whether you can pay the accrued interest off before it is capitalized and added to the student loan principal balance.
The first step is to make sure you know that you have all you loan information.When accrued interest is capitalized, this will make you student loan principal large and can increase the size minimum payments. If you have room in your budget you can apply payments to the student loan interest that is accruing right now, during the grace period.
Once the repayment period starts, focus on paying off your private student loan because there aren’t as many options for deferment and forgiveness like the Federal student loans.
Money Question 6:
As a current graduate student with loans in deferment, what should I do now to get a handle on my student loan debt?
Money Answer 6:
Melisa: First, make sure you have all the account information on your student loans, and what their current status. For your student loans that are in deferment, while you are in graduate school, find out how much interest is accruing while the loans are in deferment.
There are also, certain benefits you can get by enrolling in an income-driven repayment plan where even if you have a $0 minimum payment, those would still count as eligible payments certain forgiveness programs available for Federal student loans.
For your student loans that are in deferment, while you are in graduate school, find out how much interest is accruing while the loans are in deferment.In order to be eligible for these forgiveness programs, your loans will have to be consolidated or be direct loans. You might want to check on the status of your loans right now, on that front.
You can also, estimate how much interest will accrue on your student loans during the deferment period, and even if you can’t pay it off now, you can make a plan to pay it off before it is added to your principal.
That sums up the Q&A portion of the Money Workshop!
What are your money questions about savings, investing and paying off debt. Chime in below!
Thanks for reading!
(Photo Credits: Transform Philly Church)