Millennials are living in the best of times and worst of times. I say the best of times because the digital age we’re living in means it’s never been easier to manage, save, and invest our hard earned-money. Unemployment is down, the stock market is up, the Gig economy means anyone can have multiple streams of income. I say the worst of times because there has never been more distractions and temptations begging us to spend that hard-earned money. Credit card interest rates are sky high, interest on savings is historically low, and the future is uncertain. Rather than crumble in the face of uncertainty and challenge, we Millennials must stand up and unite for a better personal finance future, starting today! Here are 14 smart money moves that will help you do just that.
1. Ween Yourself From the Bank Of Mom and Dad
According to a Pew Research study from 2010, 36% of Millennials “depend on their parents or other family members for financial assistance…about one-in-seven Millennials with a full-time job — and about half who work part time — say they depend on family members to help them get by. About a third of Millennials who don’t have a job and are not in school get significant help from their parents or other family members.” While there is certainly nothing wrong with getting help from Mom and Dad, don’t let the BofM&D become a financial crutch hindering you from growing into financial responsibility, maturity, and ultimately, independence. While benefiting from Mom & Dad’s benevolence, create a plan for progressing towards full financial independence and give yourself a “plan graduation date” for added accountability. For even more motivation and accountability, share the graduation date with Mom and Dad!
2. Begin Cleaning Up Your Credit
If you ever hope to buy a house or qualify for the best travel rewards credit cards, a great score will be your key to unlocking these opportunities. But don’t wait until a few months before beginning the home search process or applying for that top rewards card before beginning to clean up your credit. Start today, especially if you have had a rocky financial past. First, sign up for free credit score tracking through Credit Karma or Credit Sesame. Both will give you a ballpark view of where your credit score lies with one or more of the major credit bureaus: Experian, Equifax, and TransUnion. Both will also provide you with basic information about what can be found on your credit report with one or more of these bureaus, along with a breakdown of your credit score. With this information in hand, you can begin to repair your credit by improving your payment history, paying down credit card debt, disputing any erroneous information, and taking care of any bills that have gone into collections status.
3. Pay off all consumer & school loan debt and never look back
Chicago-based psychiatric center Yellowbrick recently provided some chilling statistics regarding the effects of debt on Millennials through this infographic. Among notable stats: “29% of Millennials have put off marriage because of student loan debt; 54% of Millennials over age 30 who have student loans are worried about repaying them; In only 3 years, the number of 23-34 year olds living with their parents grew by 17.5%.” Clearly debt is affecting Millennials lives, interfering with our marriage decisions, mental health, and independence. You may have accumulated some debt over the years either to get an education or help ween yourself from the BofM&D. Or, you may have simply racked up credit card debt while living it up in your 20’s and 30’s. Whatever the case may be, there is never a better time to begin getting out of debt than today. Decide on the method of debt reduction that works best for you and begin the process of eradicating consumer and school loan debt. Once you do, continue on the path to financial wholeness and never look back.
4. Create an emergency fund
You’re fairly young, but that does not mean you should be fairly foolish. We Millennials are optimists at heart which can sometimes leave us unprepared for the unexpected. Building an emergency fund is your defense against the unexpected damaging your young financial life. As I detail here, start out with a Starter Emergency Fund that enables you to take care of a fairly large expense relative to your income and circumstances. Next, progress to a Major Expense Emergency Fund that can cover expenses that may not come around very often, but if and when they do come, require a substantial payment to fully take care of. Last, build up your emergency reserves to a Major Event Emergency Fund level that you can live off of for 3-6 months in case you experience a life changing event that prevents you from working for a while.
5. Start saving and investing for the long road
Be prepared not only for life’s unpleasant surprises through building an emergency fund, but also for life’s opportunities such as buying a house, financial independence, consistently giving to those in need, and retirement through long-term saving and investing. Getting into the habit of saving and investing now will set you up to take advantage of all of these opportunities and more. Manage your cash flow so that you consistently have a monthly surplus, and then direct that surplus to savings and investments. Before beginning to invest, make sure that you cover the 5 basic elements of investing that all investors need to consider: Purpose, Investment Goals, Time Horizon, Risk Tolerance, and Asset Allocation.
6. Open an online savings account and forget about it
Where should you store your emergency and long-term savings? You’ll want to strike a balance between accessible when needed (within 1-2 days) and not so easily accessible that you’re tempted to spend it on frivolous items. An online savings account is the perfect solution for both. Simply decide which online bank you want to use for your emergency fund and long-term savings, set up automatic recurring transfers from your checking account (or even a portion of your paycheck via direct deposit), and forget about it. You’ll thank yourself years from now when it’s time to put a down payment on your first home or buy another car (in cash!).
7. Begin maxing out your 401(k)
Maxing out your 401(k) should be at the top of your money saving priority list. Many people highlight the advantage of a company match as the best reason to take part in a 401(k) plan, and indeed that is a top reason for using this retirement vehicle, but it’s not the only reason. Even without a company match, a 401(k) should still take priority in your retirement investment strategy due to relatively higher contribution limits and the possibility of tax savings at retirement. Your ultimate goal should be to max out your 401(k) on a yearly basis, which means contributing the maximum amount allowed by the IRS ($18,000 for 2017). If you cannot max out immediately, then figure out the most that you can contribute and then commit future raises to your 401(k) until you reach the max out level.
8. Automate all of your bills
There is no reason in today’s digital age for any millennial to miss paying a bill. Most bills can be paid either through a company’s own auto-pay system or through your bank’s bill payment system (which I actually prefer). The advantages of automating your bills are two-fold: 1) You don’t have to worry about whether or not you have missed a payment and 2) through never missing any payments, you will avoid marring your credit score payment history, which makes up 35% of the FICO Score model and 28% of the VantageScore Model.
9. Create a basic personal financial system
Show me a financially responsible person who cannot explain how they organize and keep track of their money, and I’ll show you 100 that can! Having some type of system by which you handle your money is the foundation of healthy personal finance. Commit to putting some structure around how you handle your money today. Essential elements of your personal financial system should include the following: 1) How you will spend your paycheck (meaning, a spending plan or basic budget), 2) when and how you will pay your bills, 3) how you will save/invest your surplus, and 4) how you will keep track of your spending. saving, and investing. Personal Finance software such as Personal Capital and Mint put together all of these elements into a simple interface, allowing you to set up a simple budget, track your bill due dates, track you spending, saving, and investments, and, overall, track your net worth and financial health. I use Personal Capital to track our checking accounts, savings, and investments, and Mint to separately keep track of our credit card balances. Check out our financial habits ans banking strategies for inspiration on crafting your own personal financial system.
10. Drive your car until the wheels fall off
Car payments are usually one of the top expenses for Millennials who don’t live in an area where public transportation is robust. According to Experian, “the average amount financed for a new vehicle in Q4 2015 was $29,551, up $1,170 from Q4 last year, and the average monthly payment rose to $493, up from $482 in the same time period.” That’s a pretty penny to spend on a car every month. When I graduated from college, I held onto my 1996 Pontiac Sunfire and drove it until the wheels fell off (actually, until the head gasket blew out for the second time). The “Black Poni” gave me about 6 years of faithful service until calling it quits. Assuming I had instead taken on a monthly payment of $493 right out of college, the Black Poni helped me save $35,496 in total payments! I highly suggest delaying the gratification of having a shiny new vehicle in order to work towards maxing out your 401(k) and building up solid savings/investments instead.
11. Begin an exercise plan
“What does exercise have to do with money?” I can hear you thinking.. Many of us think of exercise as either a chore or a luxury, but not as a necessity. When we realize that our positive health and well-being have a direct impact on our pockets by way of lower medical bills, lower insurance premiums, and improved performance at work leading to better careers, we are in a better position to value not only what exercise can do for our bottoms, but also for our bottom lines. The Mayo clinic lists boosted energy, prevention of diseases such as diabetes and heart disease, and improved sleep as a few of the benefits of regular exercise, and suggests aiming for at least 30 minutes of physical activity a day. If you feel like you don’t have the time to even get in 30 minutes of exercise a day, trying getting increased physical activity throughout your daily routine, such as taking the stairs at work instead of the elevator. Having done so myself while living in Hong Kong for two years, I can assure you that taking the stairs on a daily basis will lead to improved stamina within just 2 weeks! For extra motivation, you could also employ the use of apps that act as your personal trainer or even gett a Fitbit like I recently did to see your daily walking progress and challenge yourself against your peers.
12. Create a 3-year career plan
You are about to begin or have just stepped into your prime earning years. If you haven’t already, now is the time to be intentional about maximizing your career not only for your professional sake, but also for your wallet’s sake through increased income. Start out by creating a vision of where you want to be professionally in 3 years. Next, create a set of objectives for the rest of this year that are in line with your longer term vision. Then, create “actions” on a monthly basis that are intentional efforts towards achieving your objectives. Regularly completing your monthly actions will lead to fulfillment of your objectives. Fulfillment of your objectives will lead to fulfillment of your 3-year vision. This process has helped me to be even more focused professionally over the last 4 years, with great results! One additional suggestion: Be sure to journal your progress along the way for added motivation and accountability, either simply through Word or Excel, or through an app such as Strides.
13. Read at least 5 financial books this year
As anyone who grew up in the 80’s watching School House Rock knows, Knowledge is Power. Commit to increasing your personal finance knowledge by reading at least 5 personal finance related books this year. Here are a few suggestions: To understand what money is and how to value it, pick Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence. For great parables that will help you understand timeless personal financial concepts, choose The Richest Man in Babylon. And for an all-in-one book about investing, select The Bogleheads’ Guide to Investing. I’ll leave the final two selections to you!
14. Follow someone more financially successful than yourself
Find someone more financially successful than you are to learn from and emulate. If you already have a relationship with this person or can build a personal relationship with this person, then great – you will get to pick their brains about how they handle money and why they are successful. But even if you cannot find someone that you can personally build a relationship with, there are plenty of mentors online, from Ramit Sethi, Author of I Will Teach You To Be Rich, to Personal Finance Guru Dave Ramsey, to online personas such as J. Money at Budgets Are Sexy and Sam at Financial Samurai, to a plethora of personal finance bloggers out there who have successfully gone through what you may be going through financially. There is no shortage of personal finance wisdom and inspiration out there. Make sure to start following someone, or many people, more financially successful than yourself today!
Begin implementing each of the above money moves today. You may not score perfectly on every one of them, but don’t discount the impact that even small progress in each area can have on your overall financial health.