Millennials – the cohort born from 1981 to 1996 – are often more educated than their forebears. However, they face unprecedented problems in managing their personal finances since their generation matured during the Great Recession.
Wage increases haven’t kept step with living costs, and student loan debt is higher than ever. Millennials have to work hard to catch up with lost income, and life milestones such as buying a house or retiring require more of an investment than previously. In addition, rents are soaring for this demographic and many millennials have to rely on handouts from their parents.
Most millennials aspire to a sustainable lifestyle. Below we give some advice on beneficial personal finance habits that can yield dividends.
It’s important to start saving even a little as soon as possible when you start earning. As a rough guide, save 20% monthly towards ‘future you’ (savings, investments and debt installments). After this, 50% of take-home pay should go towards needs (groceries, bills, transportation, housing) while 30% goes on ‘wants’ (the things you enjoy in life).
In order to be affluent by retirement, start to build up savings in a controlled way.
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Buzzfeed has 12 tips for millennials here: https://www.buzzfeed.com/emmyf/financial-wellness-tips.
Starting an emergency fund is really important. Even if you lose income for some reason, a contingency fund will help to pay for your fixed expenses. Early in your career, saving three months’ worth of take-home pay is recommended. Then as you move upward in your job roles and accrue more responsibilities, six months’ pay is more suitable.
A financial plan is a blueprint of your finances. It will help you to understand your cash flows, explain how your net worth can be increased, make clear the role of insurance, and document your financial goals and investments. The quicker you have a plan, the easier you can save – meaning less time building your finances. This is because, over time, compound interest creates wealth for you.
Apps that help you budget
Tech-savvy millennials are using apps to control their finances. Many help you set a budget and track your spending. Other rewards-based ones give you points to redeem or cashbacks. Apps include My Weekly Budget and Drop.