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Updated on Wednesday, February 25, 2015
If you’re like a lot of college graduates, you probably left school with at least a little bit of student loan debt. Starting life shackled to debt can feel overwhelming, so you might be chomping at the bit to pay it off as soon as possible.
And while paying off your debt is a fantastic goal, there are some other financial moves that will do more to help you build a secure financial foundation and work towards financial independence.
Before you start throwing all your extra money at your student loans, here are 10 financial moves you should make first.
1. Pay your minimums
The very first priority is paying all your bills on time, including the minimum payments on your student loans and other debts. However, it’s best for your wallet to pay your credit card bills in full each month.
This will not only keep the lights on and a roof over your head, but it will ensure that you build up a positive credit history, which will make it easier and less expensive to do things like buy a house and even find a job later on.
2. Get health insurance
You may feel young and indestructible, but the last thing you want is an enormous medical bill that ends up adding to your debt and making it even harder to reach those long-term goals.
Health insurance will protect you from that worst-case scenario. Hopefully you can get it through work, but if not the new insurance exchanges make this coverage available to everyone.
If you’re starting a family, check out these health insurance lessons learned from our contributor Cat, a new mom of twins.
3. Build some savings
Even if you have high-interest credit card debt, I think it’s a good idea to keep $1,000-2,000 in savings to help you handle all the little (and sometimes big) unexpected things life throws your way.
Car maintenance. Home repairs. Traveling to your best friend’s wedding. These are the kinds of expenses that can pop up unexpectedly and force you to resort to a credit card if you’re not ready for them.
The last thing you want to do is take on even more debt, and having a little bit of cash in a savings account will prevent that.
4. Write your wills (and other estate planning)
If you’re single, you can probably skip this step. But if you’re married, and DEFINITELY if you have kids, getting some basic estate planning in place is a good idea.
The biggest reason to have a will is to name the guardians for your children, which is a decision that would otherwise be left up to the state.
But even if you don’t have kids, a simple will allows you to make sure that your spouse would get your assets if you died, assuming that’s what you want. A lot of states would otherwise default to giving at least some of your assets to your parents.
5. Get term life insurance
Term life insurance is a great way to make sure that your family would always have the financial resources it needs, no matter what.
For working parents, life insurance would serve to replace your income while your family adjusts. And for stay-at-home parents, life insurance would help your family pay to replace all of the things you do, like childcare, cooking, cleaning, etc.
If you don’t have kids, you probably don’t need life insurance unless you’re married and have joint debt. For example, a couple with a mortgage that would be difficult for either spouse to afford on their own might want enough life insurance to pay off the mortgage or at least help with the payments.
For more detail on who needs life insurance and how to get it, here’s a good resource: Does the Average Millennial Need Life Insurance?
6. Get long-term disability insurance
Long-term disability insurance is one of the best protections you can buy, but for some reason it’s also one of the least talked about.
Basically, long-term disability insurance would provide a payment that replaced some portion of your income if health issues keep you out of work for an extended period of time. And since your future income is your single biggest financial asset as a young professional, protecting it is really a must.
7. Secure your 401(k) employer match
Paying off your student loans, or any other debt for that matter, earns a rate of return equal to the interest rate of the loan. For example, putting extra money towards a 6.8% would net you a 6.8% return on investment.
In most cases, that guaranteed return is a pretty good deal. But there’s one place where you can find an even better guaranteed return, and that’s your employer match.
Many employers offer a dollar-for-dollar match of your 401(k) contributions up to a certain point, which is a guaranteed 100% return on investment. But even if your employer only matches half of your contribution, that’s still a guaranteed 50% return.
Either way, it’s better than what you’ll get from even the highest interest rate debts.
8. Get liability insurance
Liability insurance protects you financially in case you accidentally injure someone or damage their property. It’s part of both your auto policy and your homeowners or renters policy, and you can also look into getting an umbrella policy for a little extra protection.
9. Pay off high-interest debt
If you have credit card debt or other loans with higher interest rates than your student loans, simple math again says that it’s a better idea to pay those off before putting extra money towards your lower-interest student loans. You will save more money by paying off those higher-interest loans first.
10. Find a balance
If you’ve handled everything above, first off give yourself a big pat on the back! You’ve built an incredibly strong financial foundation for yourself that gives you a lot of freedom to make some exciting choices going forward.
At this point, I would encourage you to find some balance between your financial goals. Paying off your student loans is a fantastic goal, but so are things like investing more for your future, building up a bigger emergency fund, and increasing your side income.
As you find yourself with extra money, think about spreading it around towards multiple goals. That will leave you with a well-rounded financial plan that gives you the best of all worlds.