Common misconceptions aside, Millennials perhaps more than any other demographic appreciate the importance of personal financial management. They also understand that the choices they make when they’re still young and single will affect them for the rest of their lives.
But it remains that some are better at managing their money than others, and unfortunately they live at a time when actions past generations took for granted – such as buying a house or saving for retirement – can be more challenging than ever.
As daunting as the future may seem, following some time-honoured strategies and adhering to them faithfully will enable any hard-working Millennial to meet his/her financial goals – and sleep soundly at night.
A fundamental strategy is to know how much money comes in and out of your bank account every month, and the way to do this is to simply create a budget – and stick to it.
Budgeting doesn’t have to involve a ton of number crunching, and by giving yourself a financial framework you will wind up with more money to spend and less to worry about.
The easiest budget is one that follows the 50/30/20 rule, meaning 50 percent of your take home pay goes to needs like bills and food, 30 percent goes to wants such as travel and luxuries, and 20 percent goes to your future (savings, investment and charity).
Once a budget is created you can tweak it to accommodate changes in income and spending habits. You should also regularly review your budgeting goals so you don’t spend more than you can repay. That’s why writing it down is important. Often times, people are surprised how much they actually spend when they go through this exercise. It’s about being aware when you step up to the cash register.
Once you have a credit card, start improving your credit score by regularly using the card and making sure you repay in full every month, or as close to full as possible. Over time you will accumulate a good credit score, and the higher the score the better it will be for you down the road in terms of securing loans and saving thousands of dollars in interest.
Another initiative closely linked with establishing a good credit score is: pay off your debts. If you have credit card debt or a student loan, make paying them off a priority – otherwise you risk incurring a low credit score and not qualifying for other financial products down the road.
Medical costs, car repairs, sudden unemployment – these and other nasty surprises can drain your reserves quickly and land you in serious hot water. So start an emergency fund by saving, say, $20 a week. This adds up to $1,000 in a year, and keep building as much as you can (consider putting it in a money market savings account that offers higher interest rates). A great emergency fund is the equivalent of three months of your current income, but any emergency fund in the thousands is better than no fund at all – and will help you avoid taking out a loan or racking up charges on your credit card.
Sure, it’s decades away, but the job market is uncertain, and you’ve already read about how much a decent retirement costs. Plus, some analysts contend that yours is the first generation that will be required to save for retirement for as long as your work career.
So start saving today. The younger you are, the more compound interest works in your favour: the sooner you start saving, the less principal you'll need to invest to end up with the amount you require to retire. For example, if a 25-year-old saves just $100 monthly, an eight percent return and quarterly compounding will yield $346,039 by the time he/she turns 65.
The sooner you plan, the sooner you'll be able to call working an "option."
There’s a long list of things you can do to be proactive with your finances above and beyond establishing the basics listed above. For example, consider switching to no-fee checking accounts (to avoid paying unnecessary monthly fees). Optimize the credit cards you use by opening a card that offers rewards tailored to your spending habits (there are dozens to choose from).
Fraudsters are rife throughout the financial world, so get into the habit of monitoring any changes to your credit history. Sign up for a credit card monitoring service in order to protect your financial information.
Finally, review all of the plans and initiatives pertaining to your finances regularly. It’s a great way of seeing how much you’re earning and keeping your goals on track.
As diligent as you have become as your own personal money manager, you need an expert to advise you of what other steps to take during your earning years, to help you meet your needs now as well as down the road. For example, you probably already appreciate the importance of getting life insurance; but what type is best for you, and what kind of coverage should you get?
Similarly, there is no end of retirement strategies to choose from; financial advisors can help you navigate the options.
Financial advisors can help with your savings and investment needs. They are always there to answer any question that may pop into your head. And they are ready to help as you, your plans, and your ambitions evolve over time.
