Should You Make Big Purchases While in School?
When your grad school roommate gets a new TV, it can be tempting to make a similar purchase for yourself. After all, it might be the first time you’re really on your own and starting your life as an independent adult.
Perhaps you have more money at yourb disposal than you ever have by working part-time jobs or summer gigs. Or maybe you’re combining your life with a partner or starting to have kids, and you need to accommodate your growing family.
Still, if you’re in school, it pays to think carefully before jumping into a big-ticket purchase—such as a house, condo, car, motorcycle, big wedding, or fancy vacation. There are many questions to ask yourself before making a decision: Do you have enough savings to afford the price tag, or help from someone else?
Is there room in your budget for a new ongoing expense? Do you know what your life will look like in the next year or two? Will your purchase still fit your life, and will you be able to afford it on an ongoing basis?
The answers depend entirely on your personal financial situation and your plans for the future. And even if you can’t afford your dream purchase today, you can lay the groundwork for making the investment in the future.
Why You May Want to Avoid Major Purchases
The first question to ask yourself applies at any stage of life: Do you really want to make this purchase? This could seem obvious, but many of us succumb to outside pressures and values as consumers and don’t stop to ask whether we truly want the item or experience.
Would a car actually help you get around, or are you looking for a status symbol? Do you really want a big wedding, or is that just what your parents expect? If the answer is yes, ask yourself whether there are ways to reduce the price tag.
Can you stay in hostels instead of resorts on your vacation? Can you buy a used car instead of a new one? Reducing the cost of a major purchase can make all the difference in your ability to afford it.
One of the main reasons to avoid spending large chunks of cash while in school is that you often aren’t earning much in this period of your life. So you should ask yourself: Can I afford this purchase? If you’re planning for a major one-time expense, such as a wedding or vacation, do you have the money saved up, or can you get it from another source, such as a family member?
If you’re thinking of buying a house or a car, you’ll not only need to have savings for the up-front costs, but also to ensure that the monthly payments fit into your cash flow. To do so, you need to make a budget. First, figure out how much you earn each month (after taxes and deductions).
Next, add up all your monthly expenses, from fixed costs, such as rent and health insurance, to variable ones, such as eating out and shopping. If you’re not sure what those are, track your spending for a month. Now estimate what the new purchase will cost each month.
Don’t forget about all the related expenses! For example, with a car, you’ll not only need to pay the auto loan, but also for car insurance, gas, and maintenance. If your expenses would exceed your income, that’s a sign that you can’t afford the purchase.
Another reason to hold off on a big buy is the high uncertainty that often comes with being in school. Most college and graduate students aren’t completely sure about the shape their lives will take after graduation, or how their income and expenses will change.
Maybe you’ll choose to take a low-paying fellowship or pursue another degree, keeping your earnings low for a few more years. Maybe you’ll need to move for work or for your partner’s job.
If you have student loans, you’ll have to start making payments not long after you graduate. All these changes put you at risk of buying something you won’t need, or won’t be able to afford, a couple of years down the line. Unless you have reason to be certain about your plans after school, it might be better to hold off until your life has some more stability.
When to Jump Into a Big Buy
Major purchases aren’t always off-limits when you’re in school. One reason to move forward is, of course, if you can afford it. If you do have money saved up, or you can rely on funds from your family, by all means, it may be in the cards for you.
If you’ve plotted out your budget and see that there is room in your cash flow, then it might not be a bad idea to take the plunge. Another reason to strongly consider a big purchase is if it would actually save you money or help you earn more.
For example, maybe buying a car or motorcycle would save you money and time on your daily commute, or enable you to travel to a better-paying job.
Or, perhaps getting a washing machine would quickly pay off in terms of money and hours saved hauling your clothes to a laundromat. And of course, the more sure you feel about your plans for the coming years, and after graduation, the more confident you can feel about making an investment.
How to Budget for a Major Goal
Even if you realize that you can’t manage a big-ticket item today, or there are too many unknowns, budgeting for large purchases can ensure you can afford them down the line. Start by clarifying what your goal is: Do you want to save a certain amount for a one-time expense, or do you need to free up room in your regular cash flow? Get clear on what numbers you want to hit.
Either way, the place to begin is with a budget. If you haven’t made one, start now! Whether for saving or overall cash flow, you’ll need to make sure that your income exceeds your expenses by the amount you have in mind. One option is to increase your income. Perhaps you can pick up a part-time job, ask for a raise, switch jobs, or look for passive income opportunities.
The other option is to reduce your expenses. Can you replace your expensive gym membership with jogging outdoors? Can you cook at home more often rather than going to restaurants? Can you suggest activities like movie nights and picnics instead of expensive concerts and bar hangouts with friends?
Can you reduce the monthly payment on your federal loans by switching to an income based repayment plan? Once you’ve freed up cash, track your spending to make sure you stick to the plan. If you’re saving, you could set up automatic transfers into a high-interest checking and savings account to ensure the money stays out of reach. Once you’ve hit your goal, it might be time to buy!
How Refinancing Your Student Loans May Help
Student loan refinancing is another potential way to save money. When you refinance federal or private student loans with a bank or other financial institution, you take out a new loan to repay your existing ones.
If you have a strong credit score and financial profile, the new loan may come with a lower interest rate than you currently have. By paying less interest over the life of your loan, you can have more money available to start saving for a big goal or take on a new monthly expense.
If you refinance with SoFi, you won’t pay any origination fees or prepayment penalties. Plus, you can check your rate in just a few minutes.
Planning for the Future
Whether it’s a wedding, a car, or a house, most of us look forward to investing in meaningful major purchases. Buying these big-ticket items may not be the best idea if you’re still in school. But by planning ahead through budgeting, saving, and perhaps refinancing your loans, you can lay the groundwork for making your goals a reality.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
SoFi can’t guarantee future financial performance.
This information isn’t financial advice. Investment decisions should be based on specific financial needs, goals and risk appetite.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Neither SoFi nor its affiliates is a bank.
SoFi Checking and SavingsTM is offered through SoFi Securities, LLC, member FINRA / SIPC . Advisory services offered through SoFi Wealth, LLC, a registered investment advisor.
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