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Young (Gov) Money – Personal Finance Strategies for Young Feds

Hi and welcome to the Young (Gov) Money blog! This blog will teach you, the young Fed, how to apply all that savvy knowhow to your personal finances. Whether you’re totally starting from scratch or are spreadsheet-happy, this blog will teach you to make the most of your financial opportunities as a Fed (Yes! You can make money here!). The format goes as such: to help those with a shorter attention span the Goal and How To sections will come first followed by the Why. If you can tolerate a little more, keep reading and you’ll learn not only how to move forward by why it will work for you. Here we go!

Goal: Get a handle on your loans and know where you stand.

5 Steps To Getting It Done:

  1. Take all the scary, unopened statements from your lenders out of the drawer you conveniently avoid. Open the statements one by one and sort them by credit card, student loans and other debts (i.e. car loan, personal loan or mortgage).
  2. Take each statement and list the lender, balance owed, minimum payment and interest rate. Don’t worry, lots of people have no idea what their interest rates are on credit card and student loan debt. If the information isn’t on your statement, call your lender to find out (they won’t snicker at you, either).
  3. Prioritize the debt accounts by interest rate with the highest interest rate account getting top priority.
  4. Add up all of the minimum payments and determine how much “extra” you can afford to put towards the top priority debt.
  5. Automate all debt payments.

Why This Works:

This strategy puts the kibosh on compound interest. “Compound what?” you ask? Compound interest is when interest builds on interest. Compound interest makes your balance BIGGER. When saving for retirement compound interest works for you – it grows your savings. When carrying debt, compound interest works against you by increasing your finance charges and consuming more of your payment. Paying down the balance keeps interest from being applied and stops the balance from rising.

Listing your account is especially helpful in seeing the big debt picture. While it may feel that your financial future is a gaping black hole, getting a handle on the debt payments now will pay off in spades. The regular, timely payments will show current and future lenders that you’re no slouch when it comes to paying your obligations. This predictable debt repayment activity will convince lenders that you can manage a loan – which translates into a high credit score and even better interest rates (refinancing, anyone?)

Bump up the payment on the highest interest rate account to a sustainable level to get ahead of the interest charges. When that account is paid off, snowball the payment from the paid-off account on top of the next highest-interest account until they are all paid off. Yes, that will happen one day. Like Wiley Coyote, your debt will come to an untimely end and fall right off a cliff with your last debt payment. And you get to smirk at it all the way down.

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Stephen Peteritas

What a great name for a blog! This first post is solid and as the government will continue to tear back their employee offerings saving will become exponentially important for young public servants

Candace Riddle

Hmmm yes “gaping black hole”. How about some advice on how to scale back basic living expenses in a metro area (i.e. DC)? It is hard to find the extra $$ to throw at debt when I’m killed by rent, utilities, daycare, and commuting costs in the D.C. area.

Amanda Parker

I think I liked the psychological aspect of this article the most. As a student with 60,000 in UG debt (currently working my way through the Masters-debt free!) there really is a lot of shame attached to how much debt you have and how (not) on top of your payments you are. I definitely reached a point where I needed to dig out those statements from lenders and get organized. You feel awful while you’re ignoring the problem, but it feels great to have addressed it.

As for other posts: I’ve tried to consolidate and no one is doing that right now. I’d love to know what options we have for managing our debt. Also, I’m mystified about how student loans affect your credit score. I hear it is “good debt”, but I still cannot get a credit card and I worry how this might affect me looking to buy a home in about a year. Also, recently engaged, my credit is terrible and his is great (no debt), does this help me/hurt him? So, a credit score post would be amazing.

Thanks for the great post!

Rebecca Schreiber

Thanks for the comment Amanda! One of the biggest mistakes I see Young Feds make is throwing all of their money at their student loans because they’re so worried about them. This leaves no money available for emergencies (dead laptop) or travel expenses (trips home) which end up on a credit card. By the way – congratulations on a debt-free Masters. It’s rough to work and complete a Master’s degree at the same time but you won’t have additional debt to stress your mind and your finances. Good luck!

Margaret Schneider Ross

It’s great to see you here, Rebecca! Lucky us! Are you looking for topics for future blogs? (How to renegotiate a loan or even cell phone charges, Making sure you’re making the most out of your fed benefits – subsidies, retirement saving and discounts…oooh…I could go on and on.)

I should mention that I’ve been one of Rebecca’s clients for several years, as have many of my close friends. She’s helped my family really understand our finances, make some important life decisions (like when I lost my private sector job at 8 months pregnant), and generally not feel like a nervous wreck about money all the time.

Looking forward to more.

Shannon Donelson

I’m not a fed, but i’m a young (right out of college) professional and will definitely be keeping up with this! Great information and I’m looking forward to reading more!

Andrew Krzmarzick

GREAT post, Rebecca! So glad you’ve started the series…

My wife and I were drowning in $50K+ of debt and we took Dave Ramsey’s “Financial Peace University” course.

Like you, he advocates for “paying down debt with gazelle-like speed.” So we did. And we knocked out that debt in less than a year by cutting back in various places and I upped my part-time consulting work. So there’s hope for people under that load.

Also, piggybacking on your response to Amanda, his first step is to get an emergency account of $1,000 so that a person doesn’t need to use credit…can be hard to build up, but worth the effort.

Again, can’t wait for future posts!

Brett Wilhelm

This blog has a LOT of potential! What advice can you offer on the TSP funds/portfolios? When researching, I’m always either faced with mountains of information or personal opinions, when what I’m looking for is guidance backed up by facts. I’m paying down my college debt (which now looks small when compared to what others are looking at!) and have ramped up my TSP contributions to the 5% max. I just can’t get anyone to accurately lay out the full range of benefits and pitfalls for all those fund/portfolio options in order to make a truly informed decision. Thanks!

Rebecca Schreiber

As a mother of two I totally sympathize with Candace’s remark. As much as I would like to say that parenthood shouldn’t influence your other financial goals, the reality is that the entire financial picture changes when kids come along. The one-two punch of high housing costs and child care bills is enough to stretch any household. The overall financial theme of parenthood: stay out of credit card debt. I’ll cover this topic more in the upcoming post but staying out of high-interest credit card debt is the best way to tread water while raising young kids. If you can manage to stay out of credit card debt, pay your bills and save modestly for retirement, you are way ahead of the game.

Heather Heater

Thanks for your post Rebecca. I look forward to additional blogs on this issue — it’s so important to young professionals.