As a millennial, one thing I feel our generation is susceptible to is expecting instant gratification. We have grown up in a world where everything has become more streamlined and responsive, with the byzantine methods of the past falling by the wayside.
Financial goals are rarely achieved in the short-term. The most sure-fire way to reach your financial goals is a long-term disciplined budgeting, savings and investment strategy. This should also include a strategy to pay down your debt.
Millennials are the most educated generation to date, with four out of 10 holding college degrees. One result of this, when combined with ever increasing tuition costs, has been a substantial increase in the amount of student debt. The millennial generation carries more debt than all the other generations before us. This means we need to be more disciplined and focused if we want to realize our financial goals.
The first step is always going to be to gain employment with benefits. Even though millennials have a generally low starting median salary, we still need to live within our means and manage our debt.
To do this, you'll need to create a budget.
Separate your “needs” from your “wants”
“Needs” should be what it takes to live day to day. This would include rent/mortgage, food costs, gasoline (transportation), etc. Do not make the mistake of redefining the word “need” to include Starbucks. Your “wants” should be the things and goals you may have to save for to achieve, such as a winter ski trip, a new set of golf clubs or even a home purchase. Once you create a budget and define your goals, you need the discipline to stick with your plan.
This will help you avoid the costly mistake of overspending.
Overspending is commonly made up for with high interest credit card debt. This can add up if you carry a balance each month, and when combined with student loan debt, can be catastrophic to your budget and financial goals.
Part of your budgeting “needs” should be to pay down your debt, with some amount of extra money being paid towards the balance with the highest interest rate each month. This higher rate means it is costing you more to have this balance than other debt. Attacking the debt with the highest rate will result in less interest paid over time, and you will therefore be able to pay down the total balance much faster.
Your budget should also allocate money for savings. Your initial priority should be to build an emergency fund with at least three to six months of money for expenses. This will prevent you from incurring additional debt as the unforeseen presents itself. It takes discipline to follow the budget and build up savings, and even more disciple not to spend it to fulfill your “wants.”
Once you have achieved these two goals, even if you are still paying down debt, you should begin to save for retirement. I recommend always saving at least enough to take advantage of a company match, because if you do not you are leaving money on the table. The amount that can be saved towards a retirement goal will vary depending on an individual’s specific situation and compensation. Just keep in mind every dollar saved now is far more valuable than a dollar saved when you are 50 (interest works against you when you have debt and for you when you are saving money). There is no substitute for time when investing and saving for your financial goals. The earlier you start saving, the more you will have in the future.
The best advice I can give my fellow millennials is this: if you want financial independence, abandon the trap of falling for instant gratification, and instead implement a disciplined budget and savings plan, as time will help lead you to achieving your financial goals.
Justin Ivey, Financial Advisor