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Personal Finance for Millennials 101


The time to prepare for your financial future is now.  Here’s how to get started

 

If you were born between 1981 and 1996 then you’re considered a Millennial, and you might not be in the financial state that your parents were in at your age.  As a group, millennials have soaring student loans, climbing cost of living and, in some cases, poor financial literacy. Along with the rise of the hashtag #adulting, it’s time to go over some basic financial tips that every millennial should know.

You Really Need a Budget

It is so easy for millennials to disregard having any kind of budget. We go weeks without checking our bank account statements in fear of seeing how little money we actually have. You might not have a budget because you are under-employed or even unemployed, or you just assume everything you’re making will go towards your never ending student loan debt. Now is the time to change that.

You want to start off by making a budget that is right for you. There are so many easy technological budgeting tools that are perfect for digital natives like us. You can create a budget and stay on track with it by securely linking your accounts to an app. (Learn how to make a budget here)

Mint is a great example of an app that can help millennials with their budgets. Sync your bank account, credit cards, and any other accounts where you have outgoing or incoming money. This will provide you with an overview of your finances. Then you’ll be able to create a budget based on your finances. This app is simple and easy to use, which means you will be more likely to stay on top of your new budget once it is created.

Now you’ll know where your money is going and where you can cut back on expenses. Did you really think you spend that much every weekend? Well, now you know! Scary, but with knowledge comes power.

Understand the importance of credit

It is tempting to open a store credit card when you are at the register and the cashier is offering you 20% off if you open one. It takes time to build your credit, but only moments to destroy it. That is why the sooner you understand the importance of credit and how it works, the better.

A good rule for purchasing on credit is only charge what you can pay off at the end of the month. This will help keep you from carrying over credit card debt from month to month. Keeping up with your credit card debt is a huge factor in determining you credit score. Your credit score is important if you ever want to get out of your parents’ house and purchase your own. It will be hard to get a loan for a house or lease a car with a low credit score. You can keep on top of your credit score by checking it at Equifax, Experian, and TransUnion once a year for free.

What is a Roth IRA?

A Roth IRA is a type of savings account specifically for your retirement. This account encourages you to save because the earnings in your Roth IRA are tax free. Many millennials aren’t currently saving for their retirement because they feel it’s not important or they’re too focused on making ends meet. Why save money for retirement when I have my monthly student loan payment, rent, and car payment? Although these financial burdens can be difficult to keep up with for millennials, putting money toward your retirement every month is just as important.

A Roth IRA is a great option for millennials to start a retirement fund because once you put money into it; any earnings are tax free. As long as you follow the withdraw rules you will not have to pay taxes on withdraws during your retirement. Even though you are roughly 40 years away from retirement, the earlier you start saving the better off you will be thanks to the magic of compounding interest.

Speaking of retirement, when should I invest in my 401k?

Since we have discussed the importance of a Roth IRA, now, let’s talk about why you need to invest in your company’s 401k. It is never too early to start thinking about your financial future and investing in your company’s 401k is a great start. You can pay into your 401K before tax which means more money saved. Another reason to start as early as possible is because most plans offer an employer match. This means your employer may make matching contributions up to a certain maximum. (That’s free money, for those paying attention!) So, if you work for a company that offers a 401k, you should be investing in it. Even if your employer doesn’t have a matching program, start saving anyway, your future self will thank you!

Do I Need A Will?

Most millennials opt to have kids, buy houses, and settle down later in life than their parents did. Therefore you think to yourself: Why do I need a will if I don’t have any assets?  You may not think you have any assets, but don’t forget your 401K and Roth IRA that we just talked about. If you’re regularly contributing and saving, these funds can start to add up, make sure they go where you would like them to.

If you die without a will you have died ‘intestate’ and the laws in your state will govern who gets any of your assets (no matter how small).  So, if you have children, are married, own a home or other assets, you need a will! Even if you have no children of your own, a few thousand dollars held in trust for a niece or nephew may mean the world to them when they begin their adult lives. You can also plan for your assets to go towards a charitable donation.

It is also important to take into account your student loans. Most federal loans are generally forgiven if you pass away. If you have private loans the lenders will seek out your estate to pay for your student loan debt.

Wills can include directives that don’t deal with money as such. You can designate who will raise your children or you may simply wish to plan for the future of your pets, if you have them.

Something else to consider; millennials have more digital assets than older generations. Although this might seem silly, a part of your will may be determining what you want done with your online presence. You could want your Facebook page to be memorialized or you want to designate a relative who will have access to your accounts. Your social presence may be something you want to incorporate into your will.

Don’t wait until it is too late and get a jump start on your will while you’re young, and remember to revise it as your life circumstance changes.

These topics don’t normally come across a millennial’s mind, but they should. Although you might not be thinking about your retirement or even your death, as a millennial you should start looking ahead to these events and make sure you have a plan. Spend a few hours one rainy weekend setting up your budget, researching a Roth IRA or looking into your company’s 401K. Take your #adulting to the next step, we promise you won’t regret it.

 



Katie Fatta headshot 2 edited (2)

Katherine Fatta is the Social Media Coordinator at Navicore Solutions. She creates fun and informative social media posts that engage the public.

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