The millennials are facing a unique set of economic and financial challenges which makes it very difficult for the majority of them to get on top of their financial situations. Most of their financial situations pose lots of problems and avoiding these problems will not make the situations any better. The sooner millennials learn and embrace how to budget and invest their money, they will always be looking for tips on how they can even save money to improve their financial situations. Taking control of your financial situation has a positive effect that will resonate in all aspects of your life as a millennial, imagine the thought of being debt-free and financially sovereign!
Millennials adaptation to currently changed economic situation
The ultimate goal for every millennial is to take full control of his/her finances and be able to pursue his/her passions, increase his/her confidence and broaden his/her career paths. However, millennials are stereotyped:
- They are addicted to social media!
- They are broke!
- They are too sensitive!
- They are not entitled!
The stereotypes are not accurate and cannot be applied to all the millions of millennials. This generation has been the largest and most diverse in history. Unfortunately, the majority of the millennials have one thing in common, they face unique challenges on the road to achieving financial success.
The economic situation changed a lot in the global recession of 2008 and the labour market became unstable. This is the moment when most millennials tried to enter the workplace. It became difficult to find a steady job, which is the first step in the chain of conventional success. Living costs have continued to rise, while wage growth is lethargic at the same time, with incomes unable to keep pace with inflation. A 2014 report by the George Washington School of Business interviewed over 5,500 millennial Americans between the ages of 23 and 35. Researchers found that 76 percent were financially illiterate, meaning even the basic concepts of personal finance were new to them. No wonder then that 70 percent of millennials report feeling financially overwhelmed, according to a 2015 Gallup poll! The standard sequence of success that has worked for previous generations is no longer applicable. Nonetheless, this doesn’t mean that millennials on their own terms cannot achieve financial success.
Tips on how millennials can save money
Confidence is the biggest financial asset! Financial confidence is the secret ingredient that empowers you to take control of your money and make smart financial decisions that are not related to how much you earn. The current financial systems are designed to confuse consumers and weaken their confidence. For example, banks want you to pay higher rates, creditors want you to take out disadvantageous loans and the media and advertising flood you with messages to buy items like the new smartphones, distracting you even further from the financial security target. These are some of the reasons why millennials end up impulse buying and end up in serious debts. The good news is that a fitful financial track record doesn’t mean you’re inherently bad with money, but it just means you don’t have the skills and knowledge to treat your money with confidence.
The key factor inhibiting millennials of financial confidence is because they cannot accurately contemplate financial success. What is considered a rich millennial or what net worth is considered rich? What is considered rich? How can I be a millionaire? Is 150k a good salary? Many millennials have an inaccurate idea of what is actually involved in financial success. They picture wealth in terms of things: houses, cars, designer clothes, expensive meals and holidays that seem completely unattainable and can lead to poor buying decisions in a misguided attempt to live the ‘rich life’. You should not necessarily strive towards obtaining material things, but towards financial autonomy, in order to achieve true financial success. Being financially independent ensures that you are debt-free and not pay-check to pay-check living. Function for financial freedom since gaining financial autonomy. Financial freedom means your investments don’t control what your life looks like.
How can millennials save money and invest? Coming up with a budget to cut off all unnecessary expenses currently being encountered. The secret in budgeting lies in prioritising purchases that bring you pleasure. The widely used 80/20 rule can be used to identify and concentrate on the small proportion of your actions that are yielding the largest proportion of results. An example of a personal budget could be taking account of your fixed expenses, like rent, debt repayments, and monthly bills. You are then left with your variable expenses or non-essential purchases. From there, identify which core groups of variable expenses bring you the most pleasure and eliminate the meaningless expenses. Try to be smart about all the financial choice you make and if you have a debt ensure you pay off every month consistently.
Easy steps to saving that will set you up for life
There are three main objectives which when met can get you back on the right track. It is indeed stressful thinking about how to fund your future or how much you should have saved by 40. Do not get overwhelmed and take control! Your first savings goal should be an emergency fund that contains enough to cover any unexpected expenses that might otherwise push you into debt. The typical millennial would target, as a rule of thumb, to have stashed away at least $1,000 USD. Make sure the investment is not tied to this income. In case of an emergency, it should be easily accessible because after all, that is what it is about. Set up a slush fund next. You should have enough cash here for three to six months to cover your expenses. You’ll be thankful for this buffer if you get sick or lose your job (O’Shaughnessy, n.d.). While your slush fund should be in an easy-to-obtain account, don’t just let that cash sit down there. You can invest the money by lending the money to a third party, like a bank or a fund, allowing them to use your money to turn a profit.
The primary and final non-negotiable investment objective is to ensure you have got a retirement fund. If you’re a millennial, here’s time on your side, therefore, start investing in your retirement and you’re going to get the rewards down the line. However, in order to build a healthy nest egg, you need to earn interest in your money (O’Shaughnessy, P. (n.d.). Millennial money.). The best way to do this is to deposit it in a high-interest, dedicated retirement account or invest in buying equity meaning purchasing a stake of ownership in a company. This equity is issued in the form of a stock, a small fraction of an enterprise or company. You receive a fraction of any profits that the company makes when you own a fraction of a company. You can buy stocks as an individual investor through public stock exchanges and forex trading. You can also try investing in mutual funds which are collectively financed by investors who decide to buy into them. A fund manager then invests their combined investments. Having a professional manage your cash eliminates the need for guesswork and is a great option for those who do not feel confident about playing their own stock market.
In conclusion, now that you have given your finances a transformation by paying off your debts, streamlining your savings and started investing you need to keep track of your accounts and investments. Establish clearly how much goes to savings and how much goes to investments when you receive your monthly salary if you are a working millennial. Always consolidate your accounts and as tech-savvy millennials, you are also uniquely placed to capitalize on automated investment services (O’Shaughnessy, n.d.). Most millennials are frustrated by the economic challenges they face and are often ill-equipped to pull together their finances. Simple steps such as learning to plan enthusiastically, structuring your savings account, and plunging and investing in houses, shares, or bonds will put the average millennium on the path to financial success. If millennials are able to cultivate confidence and develop sound financial habits, they will soon begin to reap the rewards.