By creating a budget and making better debt decisions, these millennials can be in financial control by 2024. Getting wealthier can happen earlier if they start investing and build diversified portfolios.
Interestingly, the experts suggested that setting savings and debt pay-down as the number one financial goal holds for young adults too, along with securing an emergency fund and optimising retirement contributions.
Prioritize Savings
Goals should be saved for last, but a solid savings habit is a wise place to start. Get a cushion in place first: short‑term goals like an emergency fund and paying off debt would be a good place to start if you’re just starting out. You’ll be more likely to meet your long‑term goals (buying a house, investing for a family) later on if your short‑term goals are met and taken care of. Often, if you can consolidate debt to lower interest on high-interest debt, debt consolidation can build you a financial foundation upon which you can add longer-term savings and aspirational things you want to do in life, such as an employer matching 401(k) or individual retirement account (IRA). Second, a budget will mainly habituate a sense of being thrifty, spending less, perhaps watching afternoon movies at cinemas rather than evening showtimes, getting a regular coffee drink when you order at coffee shops rather than a cappuccino, packing a lunch at home two or three days a week.
Build an Emergency Fund
An emergency savings account is one tool to help keep millennials debt-free during financially stressful times. Financial planners recommend building up a fund large enough to cover three to six months of living expenses since, as Wall Street Journal author Jonathan Clements says, ‘every windfall – whether it’s a tax refund, a work bonus or an inheritance – should be treated as temporary income’. Other saving strategies include eating at home instead of eating out, scaling back cell-phone service, and avoiding vacations altogether. Building up an emergency savings fund is a lofty goal for an inexperienced young adult who hasn’t yet encountered dire straits. So breaking the goal down into smaller steps (such as saving, say, for one week’s worth of living expenses) can seem like the only reasonable way to begin – and in the process reaching that minor milestone gets you into the good habit of saving more.
Start Investing
Investing is one of the main ways to get there, and for those who are not familiar with investing, financial planners can be a great resource and you can start small and build good habits. Before investing in any type of market, millennials should determine if they have short- or long-term objectives. Knowing what you are aiming for can provide the necessary motivation to stick with it and succeed. You might also want to practise some debt reduction, so there is more money available for investing. If you haven’t started saving, you can budget for your expenses and make your regular contributions – the earlier you get started, the more time there is for your money to grow and the more benefit diversification can create across markets.
Reduce Debt
It is important to acknowledge that debt is sometimes necessary for a sound financial regime: a home purchase and a car purchase are typical examples of prudent borrowing. However, it is crucial to maintain debt levels at a manageable degree, so that savings goals remain attainable, and you can maintain a reasonable credit rating. Excessive debt can make adhering to savings goals more challenging – and can hurt your credit rating, which in turn makes it harder to secure a mortgage or auto loan than you might otherwise prefer. Draw up a new budget and calculate your monthly expenses, then pick a good debt repayment system, such as paying off your highest interest-rate debt first (Avalanche Method), or paying off your smaller debts first (Snowball). No matter which method you pick, find ways to stay on track and remain consistent over time.
Talk Openly About Money
You just might find that you feel far more comfortable talking about something you feel uneasy about, like the fact that you sometimes disagree with your country’s politics – and that you are at peace with your homemade religion. More importantly, avoiding money talk with a prospective partner can be expensive. Experts recommend that young people make it a top priority to track what they spend each month through apps and old-school spreadsheets, so as to find areas where they can reduce costs. Coupled with establishing emergency funds, buying insurance, and researching investments, this would enable them to lay a sound footing for their financial future. Most millennials are optimistic about achieving their life milestones, and seven in 10 say that they are better off financially than their parents or guardians were at the same stage in their life. Yet, there are many impediments along the path to reaching these milestones – such as accumulating too much debt and not saving enough – that can easily keep people from becoming financially independent. With good planning, many of these issues can be overcome.