Financial Advice for Millennials

The Great Recession created a perfect storm for millennials. It was the worst financial crisis the United States had seen since the Great Depression, and it left millennials playing catch up with their finances in the hopes of someday being able to retire. But even as they fight to break even, millennials continue to accrue debt.

The Federal Reserve recently released a study showing millennials have accumulated more than $1 trillion in debt including mortgages, auto loans, credit cards, and student loans. Additionally, Schwab’s 2019 Modern Wealth report revealed that 62 percent of millennials are living paycheck to paycheck while only 38 percent feel financially stable. Despite that statistic, millennials also say they spend nearly $500 a month in nonessential purchases.

While the numbers above look grim, there is still hope for millennials pursuing the “American Dream.” It is important to remember that paying off cars and credit cards, buying a home and working toward retirement are not impossible feats. Like everything else in life, finances are about balance and finding an approach that works best for you.

Create a budget. Budgets are not “one size fits all,” and no two people will have the same financial goals. First, find a strategy that balances rewarding life experiences and saving for the future. Be realistic when crafting your savings and spending goals. For example, you can’t expect to go immediately from saving nothing each month to saving $500 a month. Start with a number that is easily attainable and increase the amount when it’s feasible.

Automate your finances. It’s easy for us to spend more than we save. The trick to overcoming that urge is to put our finances on autopilot. If your paycheck is set up with direct deposit, have a portion of it automatically deposited into a savings account that you don’t touch. Also, set up recurring transfers from your checking account into your savings account. Automatic bill pay is another great way to get ahead. Using online bill pay ensures that your bills are paid on time and you don’t have to remember to pay them (or buy stamps to mail them out)!

Track your spending. How much money do you spend at Starbucks each month? How many Amazon boxes arrive at your door each week? Chances are, like most of us, you don’t keep track of a $5 purchase here or a $10 purchase there. But those small amounts begin to add up and they can add up quickly. There are a number of apps like Mint, Quicken, and Twine – that aggregate your financial transactions and organize them by category so you can create and monitor a budget. Get some budget set up tips here.

Avoid impulse purchases. Overspending is a common interference to achieving financial goals. The more we give in to unplanned or excessive purchases, the harder it is to save money or stick to a budget. Rather than caving to those impulse buys, implement new habits to help avoid traps. Give yourself a waiting period for large purchases. During that waiting period, talk to someone such as a friend, partner, or spouse who is financially sound – and get their opinion about the purchase before you pull the trigger.

Consider a side hustle. Part-time work is a great way to make a little extra money that helps trim down debt or pad a savings account. There are multiple rideshare apps and food delivery apps that allow you to work when you want and as much as you want. If you have a particular skill set like writing or computer work, you can always look for ways to contract out those skills to make a little extra money doing freelance.

Trim your monthly expenses. Do you have a gym membership you never use? Are you paying for cable you barely watch? Does GrubHub make regular deliveries to your place? The average millennial spends more than $500 a month in nonessential purchases. Look at your budget and see where you can trim items. Replace cable with a streaming service. Make dinner at home. Get rid of that gym membership you never use and go for a run outdoors. You’ll be surprised how quickly you can build back your savings by eliminating unnecessary bills.

At First Financial, we offer our members a variety of services including financial planning and credit management counseling. We want to help you find a way to save for your future in a way that also meets your immediate needs. Contact us to schedule an appointment to review your financial situation and find a path that gets you where you want to be.

How to Survive Real World Budgeting for the First Time

One of the most exciting times in life is entering the real word as a young adult. Finishing school, getting that first full-time job, and venturing out on your own is always an important milestone. However for many, the excitement wears off pretty quickly and you then get hit with one of the harshest realities of being an adult: managing your own finances.

Why is it so hard? Budgeting and learning how to spend your money wisely for the first time is a challenge for everyone. And you’re bound to make mistakes. To make your transition easier, here are four tips to help you survive budgeting in the real world for the first time:

1. Know Your Take Home Income

When you get your first job, you will get a salary offer. Let’s say you’ll be making $20 an hour or roughly $40,000 annually. Does that mean you’ll be taking home a little over $3,300 a month?

Wrong! When you get your first pay stub, you’ll see that many expenses are deducted from your paycheck, such as state and federal taxes, social security income, and health insurance (just to name a few). This can take up a very large percentage of your gross pay, on average 25%. It’s important to know what your true net or take home income will be so that you can properly budget.

2. Understand All Your Expenses

Living away from your parents for the first time can be a real eye opener. You start realizing how many things you actually need to pay for that you didn’t necessarily think about before. Make sure you really understand what all your expenses will be – from the big items like rent, all the way to the little things like paper towels. If you’re trying to figure out how much to spend on rent, a good rule of thumb is no more than 30% of your gross income.

Also think about your food costs, which will probably be your second biggest expense. If you’ve never had to do grocery shopping before, a good first step is to just hit the grocery store with a list of necessary items you need to buy weekly. Get a gage of how much everything costs so that you can better budget for this in the future. Remember, all the little things add up – so make your budget as detailed as possible.

3. Be Organized, Track Everything

One of the most important things about managing your finances successfully is organization. Once you have that down, you’ll have an accurate snapshot of how you’re spending and what you should cut back on. Many people forget the little things, like a daily cup of coffee, but even a small expense like that can actually add up in the long run.

Make sure you’re keeping track of everything. The easiest way to do so is by starting a spreadsheet where you input your expenses. Tools such as Mint.com are also great to use, because you can integrate it with your bank and credit card accounts to help you track your purchases.

4. Save, Save, Save

Being on your own for the first time is exciting, and you’ll want to do everything and spend on everything. But remember that it’s important to live within your means, because not doing so will get you in financial trouble down the road. Start good financial spending habits now. Have a small budget for discretionary spending, but for the most part: save, save, save.

Start an emergency fund as soon as possible—because you truly never know what can happen in life. It’s also never too early to start thinking about retirement. With the power of compound interest, the earlier you start saving for retirement, that more you’ll see later on when you need it.

Article Source: Connie Mei for Moneyning.com