Money management is an important skill for anyone and everyone, but some sectors of individuals are facing different types of challenges and advantages than others. For Millennials, the course of their earning and opportunity trajectory has been radically different than many of the generations before them, which means that money management for these individuals should keep the factors unique to them in mind.
However, while this guide covers what Millennials need to know, you do not need to fit into this category to benefit from applying some of these techniques yourself!
The Current State Of Millennials
The term “Millennial” often gets thrown around to refer to anyone younger than the person speaking; however, this category of individuals is actually standardized. If you were born between the early 1980s and early 1990s, you are considered to be a Millennial.
This generation graduated into a recession and is often faced with high student loan debt and the results of depressed wages. In order to manage money well in the face of these scenarios, Millennials should keep the following tips in mind.
Step 1: Calculate Living Expenses
You cannot adequately manage your money if you do not know what you are using it for. So the first step in a robust money management plan is to calculate all of your necessary expenses.
This includes all expenses that you simply cannot avoid: rent, student loan payments, health insurance, car insurance or a car payment and more. It does not include discretionary spending, such as what you spend on entertainment or gaming.
Once you have determined how much of your money is “claimed” for sure each month, you can build from there. Some people will have very little room to save, and others will have some cushion. Both are very workable situations.
Step 2: Establish A Budget
Now that you understand how much your necessities are consuming of your total income, you can decide what to do with the rest. Budgeting helps you to avoid overspending by keeping you within a predetermined amount of money to spend.
Some people thrive on simply knowing that they have X amount of dollars to spend on eating out each month, but for others, it can be hard to perceive how much you have already spent and thus exceed your restrictions.
In this situation, the envelope method can be helpful; withdraw the amount in cash that you are allowed to spend in each category (food, entertainment, travel, online purchases—the categories will be unique to you), and then place the appropriate amount in a physical envelope. When you want to spend that money, remove it from the envelope and use it. This prevents you from spending more than you have.
Step 3: Create A Savings Regimen
Alongside establishing a budget for how you would like to spend your money, you should also consider factoring in how much you would like to save. Savings are important to keep you afloat in times of unexpected expenses; in general, a good goal to start with is to create an emergency fund that totals between three and six months of expenses.
This may be a lofty goal to achieve, but small tasks such as reducing your discretionary spending or double checking that you are not paying for subscriptions that you do not use can make a difference over time. Saving is the quintessential “slow and steady wins the race” practice. It is wise to hold a savings account in a location separate from your checking so that you are not tempted to use it; out of sight, out of mind.
Step 4: Manage Your Debt And Utilize It Wisely
Debt is not necessarily a bad thing. You should take advantage of income-based repayment and other options for your student loans if possible, but you need not shy away from other types of debt such as credit cards.
As long as you pay them off consistently, credit cards can be a powerful tool to help you accomplish your goals through points or cash back programs. They, along with other types of accounts, will also boost your credit when used right.
Trust The Experts To Help You Create A Plan That Is Right for You
Whether you feel trapped and unable to save as much as you want or you need help allocating what you are saving in order to achieve your goals, you do not need to navigate your finances on your own. The experts at Inflection Advisors would be happy to help you develop a financial strategy to realize your goals of your life. Reach out to learn more or to schedule an appointment with an advisor.