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I'm trying to develop a tentative budget for next year, and I'm wondering if I should put away some savings in case something happens. Is this recommended or even possible when one lives on loans?
Savings?
- Thread starter isa
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Well, everyone is different, so I will just let you know what I do and why. I like to keep around 3,000 in my bank account at all times in case of emergencies. You might need more then that, or you might need less then that depending on your situation. You never know when you might need money or for what, and it can take forever to file for and get more student loan money. Some examples of "unexpected" emergencies would be needing to fly back to your hometown (illness in the family) if you in school out of town, hospitalization, car repairs, or perhaps something truly unexpected. You will always have fixed costs in your life regardless of what is going on (rent, food, etc), so I think that it's a good idea to keep a little on hand so that you can afford the unexpected costs along with your fixed costs. Sometimes your loan checks may be delayed from student accounting (happens at my school sometimes), but you still have to pay the rent and you still have to eat, so that's what your savings will be for.
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Good question! I had assumed that having a good sized savings would change your financial aid, so we cashed out our mutual fund (only savings-$2,800.00) and used it to pay off our credit cards. However, our EFC on the FAFSA didn't change a bit...not one dollar!! I know there is some amount that you can have that won't influence financial aid, so I plan to ask the financial aid office what that cut off point is in the federal formula. I would say, if you can do it, definitely sock away any money you can (to a point...no need in taking out unnecessary loans), but enough to cover a nasty medical bill or broken transmission is always a good idea.
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It's called the asset protection allowance and it kicks in at age 26. Normally, the feds expect you to contribute 35% of your (and your spouse's) assets toward the cost of education. However, beginning at age 26, you are allowed to exclude a certain amount of your assets from the formula and it increases every year. It also increases if you have dependents. The amount you can exclude varies from $1,100 for a 26-year-old single student to $22,900 for a married 35-year-old- even more if you're older. You can look up the exact amount here- it's Tables B5 and C5:
<a href="http://www.ifap.ed.gov/efcinformation/attachments/TablesEFC0203.pdf" target="_blank">http://www.ifap.ed.gov/efcinformation/attachments/TablesEFC0203.pdf</a>
The above document also gives you the complete formula for EVERYTHING that FAFSA uses to calculate your EFC- including state income tax provisions, income protection allowances, etc.
•••quote:•••Originally posted by k's mom:
•Good question! I had assumed that having a good sized savings would change your financial aid, so we cashed out our mutual fund (only savings-$2,800.00) and used it to pay off our credit cards. However, our EFC on the FAFSA didn't change a bit...not one dollar!! I know there is some amount that you can have that won't influence financial aid, so I plan to ask the financial aid office what that cut off point is in the federal formula. I would say, if you can do it, definitely sock away any money you can (to a point...no need in taking out unnecessary loans), but enough to cover a nasty medical bill or broken transmission is always a good idea.•••••
<a href="http://www.ifap.ed.gov/efcinformation/attachments/TablesEFC0203.pdf" target="_blank">http://www.ifap.ed.gov/efcinformation/attachments/TablesEFC0203.pdf</a>
The above document also gives you the complete formula for EVERYTHING that FAFSA uses to calculate your EFC- including state income tax provisions, income protection allowances, etc.
•••quote:•••Originally posted by k's mom:
•Good question! I had assumed that having a good sized savings would change your financial aid, so we cashed out our mutual fund (only savings-$2,800.00) and used it to pay off our credit cards. However, our EFC on the FAFSA didn't change a bit...not one dollar!! I know there is some amount that you can have that won't influence financial aid, so I plan to ask the financial aid office what that cut off point is in the federal formula. I would say, if you can do it, definitely sock away any money you can (to a point...no need in taking out unnecessary loans), but enough to cover a nasty medical bill or broken transmission is always a good idea.•••••
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I just finished my second year in medical school. I've consistently kept $1500 in savings plus a $1500 cushion in my checking account. My husband and I also have $7500 in mutual funds that we haven't touched since we started school (he's in grad, I'm in med). It hasn't hurt us regarding federal loans, because our total annual income up to this point has been a *grand* $15,000 (from my husband's graduate student stipend), and so we're eligible for the full $38,500.
Before school started, we had a financial advisor tell us that from a monetary perspective (i.e., not having to take out as many loans), it'd probably be best to cash out the mutual funds. However, because it was a gift from my husband's grandfather, and not from our own income, and because it provides a basis for future savings (and at this point we can't increase our savings at all because we have no significant income), we decided to not cash it out. Essentially, it is a good cushion for us, and it makes me feel like we're not totally behind in starting to save for our future.
Also, the amount in savings has saved us more than once. We actually had our debit card number stolen, and somebody cleaned out our checking account. The bank gave us the money back--but it took them over two weeks to do so, and we had NYC rent and groceries to pay. So the emergency savings IS a very good idea, in my opinion.
However, if you have credit card debt, I would suggest using savings to pay that off, as well. You DON'T want to carry that into school, as you can only lose money that way.
Good luck!
Before school started, we had a financial advisor tell us that from a monetary perspective (i.e., not having to take out as many loans), it'd probably be best to cash out the mutual funds. However, because it was a gift from my husband's grandfather, and not from our own income, and because it provides a basis for future savings (and at this point we can't increase our savings at all because we have no significant income), we decided to not cash it out. Essentially, it is a good cushion for us, and it makes me feel like we're not totally behind in starting to save for our future.
Also, the amount in savings has saved us more than once. We actually had our debit card number stolen, and somebody cleaned out our checking account. The bank gave us the money back--but it took them over two weeks to do so, and we had NYC rent and groceries to pay. So the emergency savings IS a very good idea, in my opinion.
However, if you have credit card debt, I would suggest using savings to pay that off, as well. You DON'T want to carry that into school, as you can only lose money that way.
Good luck!
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