How “Gabriela” Is Balancing Student Loans and Her Future Self

By Ellevest Team

We sometimes get questions about how other people may be using Ellevest to reach their goals — so we’re sharing some stories to help bring its power to life. Meet “Gabriela” *.

“Gabriela” is 22, and she just landed her first full-time, real-world job after graduating this past May with a degree in management information systems. As a brand-new associate business analyst, she’s making $54,000 a year. She also scored a $2,500 signing bonus (niiiiiiice), which she used to move into her first NYC apartment.

How “Gabriela” Is Balancing Student Loans and Her Future Self

The one thing she’s less than excited about, though: her $35,000 in student loans. $16,000 of that has an interest rate of 3.65% (not so bad), and the other $19,000 is at 6.15% (ow). Her minimum payment will be $373 a month when the deferral period ends in November, but she’d like to pay it off faster.

Gabriela’s goals: Build out an emergency fund and pay off high-interest loans

Gabriela wants to start seriously building up her 401(k) as soon as she can, because she knows that every dollar saved in her 20s is worth more than money saved later (that’s the magic of compound returns). But she needs to get a few basics covered first: building up an emergency fund, and figuring out what to do about her debt.

She knows that it’s a good idea to have three to six months’ take-home pay saved up in an emergency fund. Since she has plenty of competing money goals, she decides to aim for three months.

She’s also clear on the difference between good debt and bad debt. Her student loans aren’t necessarily “bad debt” since they helped bump up her earning power. And it’s a smart bet to invest in a diversified investment portfolio rather than making early payments on her low-interest debt (under 5%). But the $19,000 at 6.15% is nagging at her. She’d be a lot more comfortable if that were paid off ASAP.

Gabriela’s financial picture: part surviving, part thriving

She can’t realistically get all the way to the 50/30/20 rule for her money quite yet, because living in NYC is hella expensive, even with roommates. But she’s not far off.

Here’s the lay of the money land. Out of her $3,375 in monthly take-home pay:

  • 65% goes toward expenses. That includes her share of the rent ($1,200), utilities ($70), transportation costs ($115 for the unlimited Metro Card), student loan minimum payments ($373), gym membership ($40), and groceries ($400).

  • 18% will go toward saving, investing, and debt payments above the minimum. It’s going to take some commitment, but she’s always been pretty disciplined.

  • 17% — just under $600 — is left over for wants like eating out, happy hour, shopping, and all the other things that make NYC fun.

Gabriela’s playbook: Conquer the high-interest student loans before 30

  • She isn’t about to leave free money on the table, so she’s taking full advantage of her employer’s 401(k) contribution match. If she puts in 5%, they put in 3%. 5% of her gross salary equals $225 a month. That’s about 7% of her original take-home pay.

  • She’ll take the next two and a half years to build out her emergency fund of three months’ of take-home pay: $10,125.

  • She sets up a recurring deposit into her emergency fund of $338 a month. That’s 10% of her take-home pay, which gets her to a total of about 17% of her take-home pay toward investing and saving.

  • Once her emergency fund is set up, she’ll take the next two and a half years to pay off the higher-interest student loan debt. If she pays an extra $350/month on those loans — about the same as she’d been saving for emergencies — she can make it happen. (She’ll continue making the minimum payments on her other loans until they’re paid off.)

  • Then, once her emergency fund and higher-interest loans are conquered, she plans to bump up her investing and saving efforts by allocating a full 20% of her take-home pay to her retirement.

Note: Gabriela's not real. We made her up so we can show you the kind of decisions people can make toward their goals. In other words, this is a hypothetical client scenario that doesn’t represent any Ellevest client, and it’s by no means individually tailored investment advice.

Student loans are very real, though. (Did you know women carry more student loan debt and take longer to pay it off? Thanks, wage gap!) Here's our best advice for tackling student loan debt.

See the Disclosures section below for how we calculated how much the hypothetical Gabriela would hypothetically need to hit her hypothetical goals.


© 2018 Ellevest, Inc. All Rights Reserved.

We assume Gabriela contributes approximately 10% of her post-tax salary monthly to her emergency fund, which is held in FDIC cash. We assume three months of her after-tax salary equals $10,125, at an effective tax rate of around 25%. Her monthly 401(k) contribution reflects 5% of her gross salary.

We assume that Gabriela’s minimum monthly payments on her student loans cover outstanding interest each month. Her $373 minimum payment was estimated using a straight 10-year repayment schedule. We assume that beginning in 30 months, she will make payments of $350 (on top of her minimum monthly payments) on the portion of her debt with a higher interest rate in order to pay it off over the following 30 months.

The projections of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Information was obtained from third party sources, which we believe to be reliable but not guaranteed for accuracy or completeness. The information provided should not be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice.

The information provided does not take into account the specific objectives, financial situation or particular needs of any specific person. Diversification does not ensure a profit or protect against a loss in a declining market. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. Investing entails risk including the possible loss of principal and there is no assurance that the investment will provide positive performance over any period of time.

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Ellevest Team

The Ellevest team is working to help women reach their financial and professional goals.