With growing pressure to "have it all figured out" consider that since the start of their careers, millennials have seen slower economic growth than any other generation in the United States' history. Living through two recessions wreaks havoc on not only one's career path but finance success too.
Below we've listed the 5 golden financial tips that every millennial should know when it comes to managing their personal finance. From things you can do now to planning for the future, these simple and actionable steps will assist in making your financial situation that much more of a financial success.
1. Be prepared for hard times: emergency fund edition
While none of us enjoy emergencies, they are an unfortunate and inescapable part of reality. The best way to deal with them is by being prepared, and this means putting in the work ahead of time. By having a plan in place, you can minimize the stress and damage that these situations cause.
While rule number 1 of financial health is getting yourself out of debt, rule number two is creating an emergency fund. This is considered to be six months' worth of living expenses saved in a savings account so should something go wrong - from unemployment to medical bills to car or household repairs - this doesn't take a negative toll on your personal finance.
While this is not something one can typically create overnight, consider your budget and how much you can allocate to your emergency fund each month. Then start putting the money aside, even if it takes you a year or two to get there.
Consider if something went wrong and you needed access to cash fast, would you instead use the money from your emergency fund, or take out high-interest debt in the form of a credit card or personal loan? Note that taking funds from your retirement savings was not an option, and nor should it ever be.
In your path to financial success, always have a plan to fall back on.
2. Living large is fun, but can your personal finance really afford it?
Before making big money decisions, you must ask yourself difficult questions.
Before you upgrade your car, consider whether you can really afford it. Aside from the car, there is also insurance and gas and services, can your budget afford to take these on?
Or when moving apartments, is the upgrade totally necessary, and can your budget handle it? As millennials, we love to live the high life, but just make sure that your budget isn't taking strain and that everything you buy is well within your means.
3. It's ok to say no sometimes (and avoid credit card debt)
Celebrating with friends and family is a big part of life, but you don't have to say yes to everything, especially if these celebrations are taking a toll on your personal finances.
When planned ahead of time, one can usually budget for these, but last-minute surprise events come with added pressure. Also, consider that all these functions and events add up, don't get caught off guard "living in the moment" only for your finances (and financial goals) to suffer later.
Create a budget that outlines exactly what your financial obligations are to establish what you can spend on entertainment and socializing each month. Then, and most importantly, stick to it. If a last-minute event falls outside of this budget, you're well within your means to politely decline.
Having fun with friends and family is special, but taking a financial knock will only hurt you in the long run. Prioritize your social calendar and don't live beyond your means.
4. Watch out for direct debits (except to your savings account)
Living in the digital age we find ourselves in now is designed to be stress-free and seamless. Companies are making payments effortless through automatic payments, aka direct debits, but are you entirely aware of all the payments going off your checking account each month? It's very easy to lose track of your expenses when they're all automated.
When building your budget make sure you go through old statements to make sure that no direct debits are going off your account for services that you no longer use. Ideally, do this quarterly to ensure that you're always on top of your expenses.
The most NB direct debits should be to your emergency fund, savings account, and any investments (including your retirement fund). These are not considered expenses but are deposits into your future.
5. Don't be fooled into thinking that retirement is light years away
Your retirement is closer than you think, don't get caught out. Many millennials have seen their parents and grandparents struggle with no retirement planning, break the cycle and make sure that you are prepared with a plan and a solid retirement account.
Don't wait until you're old, start preparing now and reap the rewards when you finally get there. A great way to prepare is to start putting money into long-term investments with compounded interest. These types of accounts ensure that your money works for you. Also, look to passive income options to help you build your retirement account.
Alleviate some of the grey hairs by getting your financial planning started today.
Closing thoughts on achieving financial success
While the economic cycles haven't been good to us, we are resilient and strong and will rise above it. Consider these 5 golden financial tips and build a financial strategy to ensure that you're covered for everything from an emergency to retirement. The first steps to taking the reigns of your personal finance are to write out a monthly budget, allocate funds as necessary, and then stick to your spending frameworks.
If in doubt, contact a financial advisor who can assist with furthering your financial education and provide more in-depth money tips.
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