Financial Tips for Millennials
The millennial generation consists of people born between 1981 and 1996.
It is the largest generation in American history and the first to be born into a digital world, making them digital natives.
Millennials are the most ethically and racially diverse generation with progressive voting habits and political views. Compared with previous generations, millennials are also less likely to be religiously observant.
They view themselves as individuals and don't believe in traditional work environments and hierarchies. They are more focused on the ‘life’ side of the work-life balance.
As a result, this generation is labeled as being self-entitled, materialistic and spoiled.
However, as the first generation since the Great Depression to be so profoundly impacted by the economy, it's no wonder millennials are questioning the status quo.
When the Great Recession of 2008 hit, the majority of millennials were in one of the following situations:
- Planning their post high school route
- In university or college
- Entering the workplace
As a result, millennials experienced mass job losses and three decades of stagnant salaries when they should have been experiencing career growth and planning for their future.
While previous generations were able to add to their retirement pot and save for their first home, millennials are doing what they can just to meet today's cost of living.
As such, the financial advice that is usually shared with young adults is not feasible in today's world. For example, saving 50% of their salary is not a reality when rent alone is usually half of their income.
Financial advice for this generation needs to reflect the current economy, not that of the past.
After 2008, labor market mobility was at an all-time low, and employers could control salary negotiations.
This meant that entry-level salaries were often lower than the national average.
Over the years, this forced a wider gap between rich and middle-class incomes and millennials’ net pay, which has affected them in several ways:
The first is that the cost of living has risen, and their incomes are not competitive enough to keep up.
Rather than planning vacations and saving for a property, a millennial's goal is to make rent and pay the bills – including healthcare, for those living in the US.
The second is that their student loan payments have a more profound effect than they would have pre-recession as their salaries are lower than expected.
In the UK, student loan minimum payments are based on income.
The contribution is 9% of your salary above £27,295 – approximately £200 per month. The average salary is £38,600 or £3,216 per month.
While that £200 could be used for a month's grocery shopping, it is more manageable than the repayments in the US, where the average student loan monthly repayment is $393.
US student loans are also not regulated in the same way as their UK counterparts, and there are far fewer payment exceptions.
Nor is it easy to calculate the average US salary as the cost of living and incomes differ from state to state.
Figures show that in 2019 the average US salary was 35,977.
If you factor in federal taxes, health insurance and the increasing costs of food and gas, it’s clear that financial security is not a luxury many can afford.
Finally, there is the extra debt from credit cards and personal loans.
It is not uncommon for people to buy furniture, cars or vacations on a credit card. But when salary increases and promotions are less frequent than expected, repayments can be hard to meet.
But there are small changes you can make that will allow you greater control over your finances so you can start planning for your future.
Use an app or journal to keep a record of every transaction you make. This will help you see where you spend your money, and on what.
It may also be helpful to note what happened that day. Record whether you are stressed, working to a deadline, feeling moody, bored, or are at a celebration or social gathering.
After a month or two, you may start to notice trends such as ordering lots of takeout in the final week of a deadline or that you spend a lot of money in Starbucks at certain times.
$4 here and there may not seem that much, but over the year, it can mount up.
Some millennials have calculated that they spend almost $1,500 per year in coffee shops.
Consider preparing your coffee at home and transfer the money you would have spent that day on coffee and snacks to a savings account.
Many people spend as a way to compensate for something they lack in life. To assist with professional and personal development, this may also be worth exploring if your spending habits are linked to dissatisfaction in your life.
If you discover a link, decide what you need to do to make positive changes.
At the end of every month, make a list of everything you need to pay over the next 30 days, including automatic deductions like federal taxes, interest rates and late payments.
It may not be a pleasant experience, but seeing how much interest you pay on credit cards may be the motivation you need to start prioritizing your finances.
Finding out your credit score does not affect your score, so you can check it as often as you want.
Speak to a financial advisor to find out why your score is what it is and how you can improve it by changing your spending habits.
Make it a habit to check your score every quarter as a boost to keep you motivated.
First, set your long-term goals, such as retiring with a certain amount of money in the house and owning two properties.
Decide where you want these properties to be, estimate how much your houses will cost and what you need to do to be mortgage-free by the time you retire.
You should also set a goal for when you want to retire.
Second, work backward and set short-term goals.
By what age do you need to buy your property, and how much money do you need to have saved by that time?
Knowing you need a particular amount saved within five years, for example, gives you a tangible goal as you know by when you need to achieve that goal and why.
You can then start to build your budget.
Planning your meals for the week and doing one big food shop is far more cost-effective than making multiple trips to the store.
If you’re running to the store every evening, you may be tempted to buy things you don't need. It also reduces the temptation to order in or eat out as you have everything you need and you don't want the food to go bad.
Preparing your lunches and taking your food to work also saves money. As does carrying refillable water bottles.
Before making any purchases, ask yourself if you really need that new dress or another computer game.
Everyone likes buying new things. When consumerism is at an all-time high, it is easy to develop bad spending habits.
But if you want to develop good financial habits, start thinking about quality over quantity and how this will help you achieve your goals.
See our article on living a more frugal life for more key tips.
Once you know how much money you are left with each month, decide how much will be allocated to your savings bill.
It doesn't have to be a significant amount but treating it as a bill makes it non-negotiable, which is an excellent place to start.
The snowball method is a debt-eliminating technique that can also bring other benefits.
The idea is that you:
- Write down all your debts, starting with the smallest and the minimum payment for each.
- Focus on the smallest amount first, using any extra money to pay it off quicker.
- Once that debt is paid off, you start on the next debt on your list.
- The extra money that would have been allocated to your first debt is now used to pay the second one off quicker.
- Keep up with this method until everything is paid off.
Alternatively, depending on the type and amount of debt you have, you could assign the newly freed money to a savings account.
Many will recommend not getting a credit card, but it can help boost your credit score and provide some bonuses if you manage it well.
Ideally, you want a credit card with low interest rates and benefits like air miles or cashback.
If this is your first credit card, you may have to prove you are responsible enough first before you are accepted for a card that offers perks.
Credit-building credit cards are not uncommon. Start with a small credit limit and slowly build up, never spending beyond your means.
Eventually, you can apply for or switch to a credit card with benefits.
Set up direct debits for all your bills so they leave your account just after you get paid.
This helps you to avoid missed payments and late fees, and it stops you from overspending.
With the rise in digital banking, you can customize your everyday transactions to save each time you spend.
Acorns rounds up every payment to the nearest dollar and invests the extra into a diverse portfolio.
Digit monitors your spending, and when it is financially safe to do so, automatically transfers 50 into a savings account – usually once or twice a week.
Asking for a raise can be scary, but unless you do, employers are highly unlikely to give you more money unless they are legally obliged to.
Even then, it will be the minimum amount.
If you feel that you are worthy of a raise and have the data to back that up, begin salary negotiations.
Ask for some time with your manager or employer and respectfully put forward your argument for deserving a larger salary.
While more money is the goal, you should also be open to the idea of improved employee benefits.
Many companies now offer an employee benefits package.
Depending on your employer, your package may include financial and wellness benefits. Take advantage of them.
If you have an on-site gym, use it. If your gym membership is subsidized, fill in the claim forms.
Most importantly, if your employer offers a retirement plan, find out the details and start using it.
Some employers will match what you put into your retirement plan each year. The recommended amount is 15% of your income. Make it a goal to get as close to that as you can, or add more if possible. The more you put in, the more your employer has to match.
Explore your health insurance options as well. If you are young and healthy, some high-deductible insurance plans come with a health savings account.
Some companies also have flex savings accounts designed for dependent care. You can set up an automatic deduction of $5,000 per annum that is untaxed and can be used for daycare expenses when you need it.
Investing can come with some risks, but with enough research and thought, you can build a safe, profitable and diverse investment portfolio.
As a tech-savvy generation, millennials can leverage trading apps and software to build and monitor their investments on their phones.
If you are uncertain whether you have the necessary trading skills, social copy trading allows you to copy another trader’s investments and trades.
Find a trader you trust and respect, and copy what they do.
It's difficult to think about your retirement and the legacy you'll leave behind when your current focus is getting to your next payday. But you are never too young to start thinking about creating your own will.
Not only does it protect the money and investments you currently have, but it also acts as motivation for your goals.
For example, how does your will look right now, and how do you want it to look in three or five years?
Make it a goal that the next time you update your will, you will add an asset or a certain sum of money.
In addition to your will, you should set up your medical and financial power of attorney (POA).
Be mindful of where and how you spend your money.
Rather than shopping on fast-fashion sites, support small and local businesses.
Buy from female-owned or ethically sourced companies.
The most common are:
But you can turn almost any hobby into paid work. Think about what you like to do and if it could make money.
For example, if you have a talent for upcycling furniture, could those pieces be sold on Etsy at a profit?
As a millennial, it can be very frustrating when older generations say that you don't own property because you have frivolous spending habits.
The reality is that low salaries, high property costs and increased living expenses have made it difficult for you to save and make big investments.
But it is not impossible.
By learning everything about your finances and changing some habits, you can gain control of your financial situation and plan for the future.