While the future might seem far away and your student debt insurmountable, the sooner you begin preparing for your future, the happier you’ll be. What you invest now could compound many times over by the time you reach retirement age.
Stop Spending as Fast as You Earn
One of the biggest and most important steps in responsible financial planning for millennials is to stop living paycheck to paycheck. If you can find room to cut costs, you can build a financial buffer sooner to not only enable responsible spending but also increase your future quality of life.
Learning Proper Budgeting
If you’ve gotten a raise and immediately see your spending go up with it, you need to change your spending habits. Many apps can help you with a budget, and a financial planner can help you discover new ways to cut costs as well. By making a few adjustments to your spending habits or renegotiating loans, you may be able to get an extra 20–30% out of each paycheck!
Renegotiating Student Loans
If you’re a recent college grad looking at your student loans, it might seem impossible to ever pay them back. The average amount of student debt per student in America in 2017 was near $40,000. Most student loans, however, can be renegotiated, and some can even be expunged entirely. Check with your lender to discover what your options are.
It’s a common misconception that you have to wait until you pay off your student loans to start investing. Depending on your loan provider, the interest accrued on student loan debt is often less than the compounding interest and gains you’ll receive from an early investment.
Talk to a financial planner and do some calculations—the results may surprise you. By pushing off investing and saving until after you pay off your student loans, you could be cutting hundreds of thousands off of your potential future investment returns!
Starting a 401k and Picking Your Portfolio
Most employers today provide a 401k plan as a retirement benefit to their employees. Companies typically offer this to all full-time employees who have been employed more than 90 days. A 401k is essentially an investment account—you put money in, your employer might also make contributions, and then the money is invested. Some investments are riskier than others. Talking to a financial planner about your financial goals may help clear up what you should or shouldn’t do with your investment portfolio, based on your goals.
Often, companies may offer a 401k “match”—a promise that for every dollar you invest in your 401k up to a set percentage, the company will match that dollar and help you invest in your future. If you’re at a company that offers this, it’s wise to meet or exceed the percentage that your employer will match. If you don’t, you’re leaving money on the table.
Starting a Savings Account
According to a recent study by GoBankingRates, 57% of Americans have less than $1,000 saved, and millennials have an even smaller percentage saved. Most banks have savings accounts options. By putting a small portion of each paycheck into an account designated for savings, you’ll be able to control your personal spending better. Keeping money in an account that isn’t for your day-to-day spending will help you stay on top of budgeting your paycheck.
It may sound silly, especially if you can view both balances in your banking app, but by getting used to the smaller paycheck being directly deposited into your checking account, you’ll be more likely to get used to spending a smaller percentage of your paycheck.
On top of the advantages of “tricking” yourself into lower spending, savings accounts can earn interest. While this may not seem important, especially when you have a low balance saved, it will help preserve your medium-term savings by reducing the effect of inflation on your money.
Inflation causes savings accounts to be an ineffective long-term investment strategy, but putting money into a savings account reduces the likelihood that any financial accident or catastrophe, such as a car accident or hospital bill, will result in a loan or a line of credit that will add extra financial strain with unwanted interest.
Credit Card Management
If you’re a younger millennial, you may be just opening your first few lines of credit. People have a lot of mixed feelings on credit cards, but with self-control and careful monitoring, adding extra spending power before you have a lot saved up can help you budget for big-ticket necessities, such as appliances or computers. A lot of credit cards even have cash-back or points options, so you can get cash or points for everyday spending that you normally wouldn’t get if you paid with your debit card or cash.
The important thing with managing credit cards is to never spend more than you’ll have to pay next month. If you’re carrying a balance, you’ll accrue interest, which nullifies any cash-back or points benefits you may have received. Credit cards are best used when you keep the balance on them lower than you currently have available to spend.
The big exception to this rule and a major reason many people get credit cards in the first place is to take advantage of 0% interest benefits. Many store credit cards offer 0% interest introductory offers or 0% interest for big purchases. These allow you to split up your payments so that you can get the necessity now and divvy up the payments over 3 to 24 months, based on the terms given by the credit card provider.
If you can work these payments into your budget, it may reduce the immediate financial strain of expensive items, but only so much as you can rely on yourself to pay it off in time. Most 0% interest offers are limited, which means that if you don’t pay off the entire balance by the time the promotion is over, you’ll accrue interest of the entire initial purchase, which defeats the purpose of the promotion.
Handling Your Money Responsibly
Taking small steps toward financial responsibility may seem daunting, but these are necessary steps to secure your future. With the proper wealth management strategies, responsible spending habits, and a competent financial advisement team, the things you thought were impossible may just become a reality. Our CFPs are equipped to help you help yourself towards the security and future you dream of. Contact Glass Jacobson to learn more.
Securities offered through Triad Advisors, LLC, member FINRA/SIPC. Advisory services offered through Glass Jacobson Investment Advisors, LLC. Glass Jacobson Investment Advisors is not affiliated with Triad Advisors, LLC.
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