Aged between their late 20s and early 40s, millennials are in a stage of life where financial planning is incredibly important. These are some of the most important years of your life when it comes to your career, wealth, assets, and family finances.
However, studies suggest that millennials are the first generation thought to be worse off financially than previous generations. Millennials are typically earning less, are less likely to own a home, and are often saddled with sky-high student debt.
That's why it's so important to get a handle on your finances and develop a plan that can help you maintain good financial health.
Understanding millennial financial challenges
Many millennials left school around the time of the recession of 2008, entering the job market during a particularly difficult economic period.
Since then, COVID-19, inflation, and rising education and house prices, as well as stagnating salaries have made things tough for this generation. While these things are largely out of your control, what you can control is your financial plan for the future.
A sound financial plan can help you better navigate these challenges, build wealth, and manage finances effectively.
Millennial financial planning tips
Reduce debts
Student debt is a big challenge for millennials, thanks to the rising costs of education. This can make it much harder to save money or manage finances because a chunk of your income is going toward paying debt.
On top of that, millennials often have credit cards, auto loans, personal loans, and "buy now, pay later" debt. Rather than making the minimum payments on these debts, see if you can increase repayments to clear debt faster.
Outline all the debts you currently have, check interest rates, and make a plan of action for how you're going to tackle each debt. You may want to increase payments on the largest debt first or the one with the highest interest to save money on fees.
Debt isn't always something you can avoid, especially if you want to buy a home one day. However, it's wise to stay away from debts such as payday loans or other high-interest debt that can be difficult to pay off and could potentially damage your credit.
Improve your credit
Your credit score can affect your ability to take on debts such as a mortgage, get a job, or even rent an apartment. Some employers and landlords want to see your credit score to make sure you can consistently manage your finances and debts.
Be sure to regularly check your credit report for errors and make adjustments to your finances to improve your score. Ways to boost your score include paying off debt on time, having a credit utilization ratio of 30% or below, and avoiding applying for multiple types of debt at once.
Establish savings goals
Working toward specific savings goals makes you much more likely to save regularly. If you currently save whatever is left from your paycheck, there's a good chance your savings aren't growing as fast as you'd like.
Think about what you would like to save toward — whether it's a home down payment, further education costs, a new vehicle, or a business idea — and set some concrete targets.
Come up with a figure for each goal, set a deadline, and decide how much you can comfortably save for each goal. It may not be possible to save for everything at once, so you may have to prioritize what's most important for you.
Work on career progression
One of the best things you can do to improve your financial situation is work on career progression. This could mean finding a new job, retraining for a higher-paying field, or creating a progression plan for your current company.
By investing in yourself, you can increase your earning potential over time, which is especially important to help you progress and combat rising inflation.
Don't forget retirement
It may be a long way off, but the best time to start saving for retirement is as early as possible. If you haven't already, make sure you're taking full advantage of employer contributions to your retirement.
You can also save additional money toward a private retirement account, so you're better set up later in life.
Invest wisely
Saving is important, but to build wealth and protect your future, investing is the way to really grow your money.
Investing can be intimidating at first, but a simple way to start is to invest through a trusted platform like Vanguard and pick an index fund that spreads your risk rather than investing in individual stocks.
Be aware that any investments have the potential to decrease in value as well as increase. In other words, you could lose money. However, if you're consistent and patient, you should see your investments grow over time. Just make sure you're not investing money you need in the short term, and be conscious that investing is not a get-rich-quick scheme.
Take advantage of low life insurance prices
The younger you are when you start a life insurance policy, the cheaper your premiums will be. If you are married, have children, or own property, a life insurance policy is important to protect yourself and your family in the event of illness or even death.
This will be especially important when you're older and are more likely to face health issues, which could leave you unable to work and pay the bills.
Build an emergency fund
Building an emergency fund is another important part of any good financial plan. You never know when you will need to make an emergency payment, such as a car repair or a medical bill, or support yourself through a sudden company layoff.
Aim to save a portion of your salary each month to set aside just for emergencies so you don't have to rely on debt to get you through tough times.
Ideally, you will save enough for a few months of living expenses that could get you through a sudden job loss or illness that limits your ability to work, but anything you can save is better than nothing.
Keep track of your spending
This goes for every generation, but keeping track of your spending is an important part of any millennial's financial plan. You could try an app such as YNAB to track spending or just by using a simple spreadsheet.
By tracking spending, you can identify areas of overspending and try to make cutbacks on unnecessary purchases that add up and hold you back from achieving your financial goals.
Shop around for things like utilities, internet providers, groceries, and insurance providers to make sure you're not overpaying on the essentials.
If you have a tendency to overspend, you could even consider using a separate card for things like groceries or other areas that you want to cut back on. Try the Netspend Debit Account to better control your everyday spending.1
Prioritize your financial goals
Trying to squeeze the above suggestions into your financial plan may be a challenge to do all at once. Instead, you could pick one or two to start with and see how you do. For example, you may want to prioritize saving for a house down payment and an emergency fund first before thinking about investing or taking out a life insurance policy.
