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Under President Biden’s recently announced $10,000 student-loan forgiveness plan, 33% of borrowers will see their debts wiped out completely, while others will have their monthly payments lowered significantly (the average student-loan borrower pays $460 a month towards their debt).
For many, says Ramit Sethi, author of “I Will Teach You to Be Rich,” now is the ideal time to start building wealth.
“This is a golden opportunity to create a simple, sustainable plan for your money,” he tells Insider.
Sethi, who just released a journal to accompany his bestselling book, encourages borrowers to use this time to update their financial wellness plan in three ways.
With student-loan payments lowered or eliminated completely, some borrowers will have more wiggle room in their monthly budgets. Sethi recommends welcoming that extra money with a specific savings plan to help you build your “rich life,” as he calls it — the life you would live if money weren’t an issue.
“One of the things that I really want people to know is that if you put aside $100 or $200, or certainly $400, a month, that doesn’t seem like a lot in the short term, but it adds up. With compounding, that money turns into a tremendous amount of money. And so this is a golden opportunity for people,” he says.
Sethi says you shouldn’t wait to start investing until after your student loans are paid off — start now, even if it’s just a small amount. Even if student-loan forgiveness will only decrease your monthly payment by $25 or $50, it’s important to start building the habit, he says.
“Even though it might cost you a slight bit more to invest and pay off debt at the same time, as soon as that debt is paid off, it’s much easier for those people who were doing both to simply take the money that went toward their debt and shift it toward their investments,” says Sethi.
“Guilt-free spending is what you spend on eating out, buying beautiful cothes, vacations,” explains Sethi. Guilt-free spending is an essential part of building your “rich life.”
Sethi suggests putting some of your monthly savings — if your debts are paid off and you’re already investing — toward increasing your guilt-free spending.
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