Millennial Savings Guide
Crafting and Pursuing Financial Goals for Long-Term Growth
Millennials often find themselves at the crossroads of critical financial decisions. Questions about when to start retirement savings, how to juggle student loan repayments with investments, the ideal size for an emergency fund, the intricacies of credit scores and the challenges of housing choices can feel overwhelming. If you’ve faced these dilemmas, you’re in good company.
These financial quandaries are not the burdens of just a few; they are the collective experiences of a generation that stepped into adulthood amid economic turbulence characterized by recessions, mounting student loan debts and shifting job landscapes. Fortunately, with the right insights and tools designed for millennials, you can navigate this financial maze with confidence.
Adulting 101: Millennial Strategies for Effective Money Management
1. Know Where your Money is Going
Budgeting is pivotal in personal finance. While the thought of spreadsheets and budgeting can seem daunting, the core principle is straightforward: understanding your income and expenses. Start by determining your monthly net income. Next, identify fixed expenses such as rent/mortgage, utilities and car payments. After that, list out variable expenses, which fluctuate based on your lifestyle choices, like dining out or shopping. Subtracting your expenses from your net income yields your surplus, which is the amount available for saving. To simplify this process, apps like Pocket Nest and Mint Mobile can track and categorize bank transactions. This not only helps identify your surplus but can also highlight forgotten or unnecessary expenses.
2. Establish Goals
With a clear picture of your surplus, you can set financial goals. Saving is akin to a muscle; the more you exercise it, the stronger it becomes. So, what kind of goals should you set? Initiating an emergency reserve is important unless you’re grappling with high-interest consumer debt. Ideally, your emergency fund should cover three to six months of living expenses. For instance, if your monthly fixed expenses are $3,000, your reserve should be between $9,000 and $18,000. According to a survey conducted by GOBankingRATES, out of 1,000 adults polled, 6 out of 10 have savings of $1,000 or less. It’s important to set savings goals to reach milestones, starting with $1,000 and then gradually increasing to $2,000, $5,000 and beyond. Saving money requires purposeful action rather than aimlessly putting away small amounts.
After establishing this fund, you can address other goals like investing or student debt repayment. When deciding between investing and debt repayment, compare potential investment returns to the interest rates on your debts.
3. Take Advantage of Employer Benefits
Many employers offer savings programs such as 401(k)s, profit-sharing or simple IRAs. These deductions, taken directly from your paycheck, instill a savings habit. The added benefit of an employer match is essentially free money that accelerates your savings growth. Some employers also assist with student loan repayment, further boosting your financial well-being. The Secure Act 2.0 now includes a provision that enables employers to match their employees’ contributions to a defined contribution plan, depending on the amount they pay toward their student debt. Employers offer several benefits that can help you maximize your savings. Make sure to take advantage of all of them.
We have experienced a pandemic, inflation at 40-year highs, a changing career landscape, technological innovation and a surge in value-based investing. With ever-changing conditions, education will give you the confidence to maintain control of your finances throughout the chaos. To improve your financial literacy, there are various free resources available online. You can also check with your employer to see if they offer educational tools. Additionally, apps like Pocket Nest and Mint have in-app educational resources. Being financially literate means understanding how the information you read impacts your finances and making informed decisions. For instance, if there is high inflation, rising interest rates or shortages of products, how will it impact your finances? By educating yourself, you will be better equipped to answer and adjust to these questions.
5. Connect with a Financial Planner
A study by Northwestern Mutual revealed that while 60% of Americans feel the need to enhance their financial planning, only 35% consult financial professionals. (1) A financial planner’s expertise can refine and amplify your savings strategy. Moreover, 80% of those who engaged a financial planner reported improved savings.
Although everyone’s finances are unique, these five fundamental principles apply universally. The guiding principle is knowledge. You can effectively manage your finances by knowing your finances, setting smart goals, leveraging available resources, seeking financial literacy, and connecting with a professional for holistic planning. Taking these steps will benefit both your current financial situation and your future self. Contact an Adams Brown wealth advisor to discuss your financial planning goals.
(1) Northwestern Mutual Planning & Progress Study 2022. An annual research study explores U.S. adults’ attitudes and behaviors toward money, financial decision-making and the broader issues impacting people’s long-term financial security.