Imagine Prakash, a professional software developer born & brought up in a small town in Uttar Pradesh, recently joined an MNC in Bangalore. He completed his BTech with the help of a student loan, and now that he has a job, his EMIs have started. Having spent his life in a small town, his dreams were modest, and his lifestyle moderate. However, now in Bangalore, he sees his peers enjoying a lavish lifestyle. With his newfound decent income, he too wants to indulge in the high life, which involves buying an expensive phone & a car, spending weekends in clubs, dining out and more.
Prakash spent most of his income on this lavish lifestyle, aiming to improve his quality of life. When the date of the EMI deduction arrived, his bank account declined the transaction due to insufficient funds. Seeing the message sent a cold chill down his spine as he wondered how he had no money left to pay the loan. He is now afraid that the bank will seize his collateral asset at any time and that he will receive repeated calls from the bank. In a hurry, he took out an informal loan from a friend to pay the EMI. However, he finds himself unable to escape this cycle every month. He is unsure what to do now and is wondering if there is a way to budget student loans without sacrificing quality of life.
If you can relate to this story even a bit, then this article is crucial for you. Here, we will disclose how you can manage your budget smartly without significantly affecting your lifestyle. So, keep reading below to learn more.
Reasons Why Budgeting is Important for Paying Student Loans
- Making a budget can help you allocate your money wisely so that repaying the student loan is not a burden.
- Students often sacrifice their lifestyle for education loan repayment, but with budgeting, you can make room for your hobbies and your EMIs.
- Budgeting can help you save money for emergency situations.
- Without a proper budget, you will have the stress of paying your bills and your study loan EMIs.
- By budgeting for your student loan, you can avoid accumulating additional debt.
Tips for Budgeting Your Student Loan Repayment Without Sacrificing Quality of Life
Listed below are some expert tips on managing your monthly budget. By following these tips religiously you will start seeing improvements in your ability of loan repayment without making a hole in your pocket.
Set Your Goals Straight
The first step to managing your finances is to become financially stable to pay the education loan EMI without compromising your quality of life by setting a clear goal in mind. You need to be aware of how much you owe to the bank and how much you make. Also, you need to figure out how much you spend on a monthly basis and how you can reduce your spending without disturbing your quality of life.
Budgeting Tools
There are various finance management apps available on the Play Store and App Store. You can get these apps and start tracking your income and expenses. You can add specific expenses from big to small, like ₹100 on food, ₹50 for travel, ₹1000 for water bills, etc. After a few months, you can also check your spending trends to understand where you are spending most of your income. Then, you can use this data to better manage your spending and save money, which can help you repay your education loan without sacrificing your quality of life.
Focus on Small Changes
When people start earning money, they often change their lifestyle. During student life, if you were used to travelling using public transportation, then you might be tempted to buy a car. However, if you look at it logically, you do not need that car right away; you only buy it because you want to have some luxury. That is why it is important to keep in check what your needs are and what you can avoid buying.
It is best to focus on small changes in your life to minimise your expenses and maximise your savings. For example, if you love going to a cafe to enjoy a cup of Cappuccino, then you could try to learn how to brew your own coffee and save money. Try home cooking to avoid takeouts, and you will see that you are spending a fraction of what you were paying on eating outside. You could also avoid going to clubs and instead use that time to do something else, like starting a new hobby!
Passive Income is the Key
Have you recently watched a reel describing passive income? If yes, then you must have some idea about what passive income is. While the reel may not have given you a clear idea about it, you should know that it is one of the most effective methods to make some room breathing room within your budget! You can combine the money you generate through your active income (job/business) and your passive income to drastically increase your cash inflow. Thus, you will have more money to spend even after paying the EMI of your education loan, which you can then use to improve your quality of life.
Some of the best ideas of passive income are:
- Lending money and collecting interest
- Start your dropshipping business.
- Buy a rental property
- Start your affiliate marketing business
- Become a social media influencer
Making Good Use of Bonuses
Working professionals often get joining bonuses or performance bonuses. These bonuses are often given to them on a yearly basis. The best way to use these bonuses is not to spend it on luxury but to pay off your student loans. If your education loan EMI is ₹10,000 per month and you get ₹50,000 as a performance bonus at your office, then you should use that to pay five months’ worth of your EMI in one go, in advance. By doing so, you can save a lot of money and pay off your loan well in time. This will help you have some funds left with you to improve your quality of life.
Making Good Use of Coupons & Discounts
If you are on a budget, then you should use every chance you get to save money. That is why you should make good use of coupons and discounts. Remember those pamphlets you got the last time you visited the supermarket? Yes, those with the ₹100 off on buying groceries, use that the next time you visit to buy something. By doing this, you can save on your monthly expenses, which you can then use to fund your lifestyle without disturbing your budget and repaying your education loan.
Also Read: Factors to Consider Before Applying for an Education Loan
The 50/30/20 Rule for Budgeting Your Student Loan
As a working professional, your goal should be to pay off your student loan, save money, and, at the same time, not compromise your lifestyle. To achieve this, you can use the 50/30/20 rule, which we have discussed in detail below.
50% to Your Needs
Once you get your salary on the first of every month, you should allocate 50% of it for your needs. For example, if you get ₹50,000 as a salary, then ₹25,000 will go towards your needs like food, travel, education loan EMI, groceries, laundry, etc.
30% to Your Wants
For your wants like eating out, watching a movie, paying gym fees, OTT subscription, etc., you can allocate 30% of your earnings. So, for example, if your income is ₹50,000, then you can spend ₹15000 to improve the quality of your life.
20% to Your Savings
It is wise to start saving when you start earning, but it is sometimes very difficult to do so when you have a pending education loan. To counter that, you can use this 50/30/20 rule, which suggests that you save 20% of your earnings.
Other Popular Budgeting Techniques
Listed below are some of the budgeting techniques that can help you manage your money efficiently. help you pay your debts quickly. However, these budgeting techniques are not designed to prioritise your quality of life and should be used when you are still facing issues in repaying your education loan EMIs after following the aforementioned tips.
Pay Yourself First
As soon as you receive your paycheque, you will set aside the money you need to pay your student loan and any other additional debts. Then, you will start planning your spending for the month with the remaining money. This way, you may have to sacrifice your quality of life a bit, but you will never miss out on any EMI payment. This method works well with individuals who struggle to save money at the end of the month, which affects their EMI payments. </span>
The Envelope Technique
In this technique, you first need to figure out how much you are spending and what you are spending. Then, you need to filter out all your essential spending without compromising your quality of life, such as your electricity bill, grocery shopping, fuel charges, spending on movies, etc. Then, the minimum requirements for each of these essential spending will be determined. Next, create envelopes for each of your spending and then add a certain amount as needed. For example, if you add ₹3000 for eating out, and on the 26th of a month, you spend all your money, then you can not spend more in that category. You need to make do with home-cooked meals for the remaining days.
Also Read: Education Loan Interest Rate – A Detailed Analysis for Popular Banks
FAQs
What is the best way to manage funds for student loan repayment?
The best way to manage funds for your student loan EMIs is to make a budget and track your income and expenses.
How do you budget for student loans?
You can use various free tools available online to create your budget. You can input all your expenses and income sources in the tool, which can give you an overview of where you are spending the most and where you can cut your expenses to save money for student loan repayment.
Is it a good idea to consolidate student loans?
Yes, it is a good idea to consolidate your loans if you have multiple student loans and other debts with varying interest rates. You can opt for a debt consolidation personal loan, which will consolidate all your debts under one umbrella. Instead of multiple EMIs, you just need to pay one EMI to pay off all your debts.
How to save money when you have a student loan EMI to pay?
When you have a student loan EMI to pay every month, it is indeed very difficult to save money, but with the use of the 50/30/20 rule, you can distribute your income smartly to save 20% of your income.
Is it possible to increase my income while repaying student loans?
Yes, you can explore passive income sources, part-time jobs, or freelance opportunities to boost your income.
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