Millennials are very different from prior and subsequent generations. One thing that sets these people born between 1981 and 1996 apart is that they entered the workforce during a great recession. Millennials’ money habits are linked to their perception of the world, which is shaped by an economy struggling with few employment opportunities and a lack of employment benefits such as pensions.
With today’s overwhelming economic uncertainty, financial planning is important to be mastered by millennials (born between 1980s-1990s) in order to secure their future. Basically, financial planning encompasses certain knowledge and methods of how to earn, save, spend, and basically manage their money strategically.
Millennials are considered reckless spendthrifts but are concerned about their financial well-being and actively looking for saving programs and investment opportunities. Most millennials are already entering their higher earning years, which is the time to lay a solid foundation for their future. If you are saving for your child’s future, an UGMA account can be your trusted companion in building investments on your child’s behalf.
By implementing the right step you can easily achieve your short term or long term financial goal. However, financial planning can be intimidating for some as it is not a subject to be taught properly at school back then. Continue reading to find out essential tips and strategies that can help young adults manage their financial affairs.
1. Spend Less Than You Earn
The first basic rule is to spend less than you earn. No matter how high your salary or income is, if you can’t control your spending habits, you will never feel enough. Spend less by identifying which unnecessary cost can be trimmed and which couldn’t be. With this, you can see the top priorities and help with financial planning effectively.
You can start by something simple, like cooking home meals bento instead of having lunch at a fancy restaurant, making your own coffee instead of ordering a grande at Starbucks, etc. Don’t drain your bank account for something basic, only splurge on the things you really enjoy.
2. Create A Budget
Take control of where your money goes. Always set a budget on your average spending per month and regularly update it as your lifestyle and goals change. You can easily determine if you overspend your income by tracking all of the expenses and see if it is possible to save more money.
Another smart strategy to save is by comparing service providers in your area. Comparison tools like Selectra can help you find the most affordable utility providers, lowering your bills and boosting your long-term savings.
When you realise how much you spend on living cost, you can easily set more control over your expectation towards your own financial goal.
3. Build An Emergency Fund
Maybe at the moment you’re fit, healthy, and basically have a stable income. But no one can really tell if one day or next month unemployment happened or your business went bankrupt. For this reason, it is important for millennials to save some money in a separate bank account as an emergency fund. This should be prioritized before payoff debt or saving for large purchases as some emergency events may come inevitably.
Now, you probably will ask about the amount of money you should save for it. Depending on your situation, but most financial planners would recommend saving at least equivalent to your three months up to one year of living expenses. Setting aside $100 monthly in savings will ensure you have more in an emergency kitty than the average American within a few months.
The 50-30-20 rule is a great framework to follow in savings and investments. This implies that 50% of your income should go to basic needs such as housing, debt repayments, utilities, and food. 30% to wants like gym membership and 20% to savings. Cultivating a savings culture gives you peace of mind, sets the foundation for investments, and provides a safety net in emergencies.
4. Saving For Retirement
Due to inflation, there’s no way that you can save enough cash for retirement without doing investment. The best option is to earn compounding interest so that your savings will be beneficial for your future-self, and thus the only long-term strategy is by starting to invest in the stock market. Regardless of your age, the sooner the better as you will earn more money in contribution towards retirement.
Your senior years are fast approaching, and now is the time to double down on your retirement planning. According to a recent survey, millennials need to catch up in preparing for retirement. What can you do? Take advantage of your employer-sponsored retirement plan, mainly because your employer will match your contribution, and you also get to save on taxes. In addition, you could set up an individual retirement account (IRA) and enjoy tax break benefits.
5. Buy Insurance Plan
Whatever your status, married or single, with or without child, It’s important to have the right insurance to protect your income, savings, and family in the case of disability, natural disaster, or death. Life insurance and health insurance are generally the best options. They are affordable and can cover medical expenses, funeral bills, debts, and replacing your income until the given time.
Before purchasing insurance, remember to compare and investigate insurance plans and policies from various providers to get the lowest rates with the best coverages that you need. Alternatively, you can also hire a reliable independent insurance agent to efficiently find the right plan based on your needs and financial condition.
Conclusion
Living in uncertain times against the backdrop of a volatile economy is motivation enough for millennials to take charge of their finances. Following the above recommendations will set you on a path to financial security.
Salman is a prolific environmental writer, and has authored more than 500 articles in reputed journals, magazines and websites. He is proactively engaged in creating mass awareness on renewable energy, waste management, sustainability and conservation all over the world.
Salman can be reached on salman@cleantechloops.com
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