When you are young, saving your money seems to
be very difficult. You might be clueless about how you would handle your money,
manage your expenses, apply for credit, and get or stay out of debt. You might
just be seeing your pay check as a way to get by month to month and not really
to save or invest
for your future.
The millennial demographic, which is comprised of individuals in their early 20s to late 30s, is said to be the most guilty of financial planning. According to Entrepreneur Europe, the millennial generation has its virtues and shortcomings, but more often than not, millennials are considered to be financially undisciplined.
One of the financial facts about this generation is their “expensive millennial lifestyle” which reflects their splurging habits on daily treats, eating out, lattes, clothes, socializing, and impulse buying that leave them with very little savings or none at all. The money being spent on this kind of lifestyle could otherwise be used for long-term financial goals.
However, these habits are also being attributed to millennials’ lack of financial literacy and understanding of investing fundamentals as compared to older generations. This often results in them not knowing about the benefits of investing, not taking the risk to grow their money or worst, and not even bothering to do financial planning. This also limits their chances to long-term wealth accumulation and high investment returns.
Despite this, millennials are said to be stressing too much about money. A report finds that nearly half of the millennial generation worries about debt, even more than they worry about their job or health. Another study reveals that two thirds of millennials lose sleep over money issues and another issue they worry about so much is their social image which pressures them to show off a successful life especially on social media.
Although millennials have often been a target for bashing on their spending habits, people should also know that this generation can also manage to save some money which they usually allocate or their home and travel goals. With this saving patterns, millennials are said to be the conservative investors who would prefer to put away their money in savings account than investing in real estate, stocks, bonds, or mutual funds.
Meanwhile, saving for retirement is another area that the millennial generation has to champion to improve their financial lives. Millennials have limited knowledge and understanding of pensions and retirement planning that they don’t even know about the pension contributions being made to their account and how much income they will require during retirement.
Another interesting financial fact about millennials is their “experience spending” which shows their preference on experiences over possessions. According to several pieces of research, millennials prefer experiences over things which is reflective of their aspiration to see the world through travels. They want to experience different cultures, they want to go places and discover themselves, they want to feel free, and they want to learn from these rich experiences that would help define themselves as a person.
Millennials may have had multiple setbacks but that should not keep them from achieving financial independence and reaching their full financial potential. If this generation could only realize that by simply putting just a little money on the side each month and downscaling their lifestyle can make a huge difference.
Let’s take a look at these financial planning tips for millennials and young adults to help you build confidence when it comes to financial planning and enable you to live your best financial life starting this year.
1. Learn and practice self-control
No to impulse purchase! Learn to keep your financial priorities in order and think about the things that you need versus the things that you want.
Although oftentimes, it might be easy for you to purchase items the minute you want them, try to hold them off. Delaying purchases can help you determine if it is a need or just a want.
Moreover, hold on to what you have. Try to ask yourself how long can you make use of your things. Can you still repair a piece of clothing? Can you still use your smartphone in another year or two? Delaying making a purchase until your item is no longer working saves you a lot of money.
Even if you have the money, always look for the best deal. If the item that you want is not on sale this week, it might be the following week. If it does not go on sale then try to reconsider buying it. Counter impulse purchase by planning what you have to buy. In this case, you will have the opportunity to weigh the advantages and disadvantages of buying that item.
Remember to eliminate impulse purchase and see how your money can quickly turn into emergency fund or savings.
Read more: Filipino Millennials: How to Overcome Your Financial Dilemmas
2. Identify short-term and long-term financial goals
Young adults may find financial goal setting overwhelming. For millennials, shifting their mindset to include long-term financial goals may be challenging and impossible to achieve. However, it is important to recognize the benefits of identifying these short- and long-term goals to be able to map out what you need to do to be able to hit these goals.
Ask yourself, what is it that you want to achieve? How long will it take for you to achieve it? What are the necessary steps in order for you to achieve it?
Once you have identified what you want and what is important to you, you need to identify what is achievable in the short and long run and what you need to do to get successful results.
Financial goals are said to be savings, investment, or spending targets that you hope to achieve in a given period of time. Financial goals allow you to create a realistic plan, force you to prioritize near-term demands over long-term desires, make you more focused and accountable with your decisions, and give you more reasons to celebrate with small and big milestones you encounter along the way.
Make it easier for you to achieve your financial goals by writing them down. Identify what you want to achieve immediately, in the next couple of years, and in the long run. Think of ways and strategies on how you could be able to achieve them. In this way, you will feel more motivated to stay on track and hit your goals.
Remember, whether these financial goals are immediate or far into the future, defining them will give you a clear sense of direction for putting appropriate strategies in place.
Read more: Millennials and Money: 6 Financial Fears and How to Overcome Them
3. Create spending and savings plans
If you don’t learn to manage your money, you will end up with little or none. Develop a realistic spending plan by establishing a budget and listing down the essentials so that you can be able to manage what you have to spend on the things that you need.
By creating a budget, you will be able to see where your money is going each month and allocate funds to savings. It will also make you realize that making small, manageable changes in your everyday expenses can have a huge impact on your financial situation.
Make sure to align this with your short- and long-term financial goals and for it to reflect the specific amount that you are willing to work on. In order to help you track your spending, you can use various tools and apps available online but remember that these tools are used for budgeting purposes only. The spending decisions are still up to you.
Once you have set your goals and create a budget plan, it is crucial to understand and develop a savings plan. One of the easiest ways to do this is to allot a specific amount to set aside regularly which can be automatically debited from your account. You can always start small by simply saving at least three to ten percent of your pay check to a savings program.
4. Explore investment options
It’s not enough that you have a savings account. Investments are a great way to grow your hard-earned money over time. For some people, the idea of investing might be exciting and scary at the same time but developing a basic knowledge of investment options would help you choose investments that match your tolerance for risk.
Figuring out how to invest your money entails where you should best invest it in. The answer will depend on your personal investment goals and your willingness to take on more risk in exchange for higher potential investment rewards.
Common investments include Stocks which are comprised of individual shares of companies you believe will increase in value; Bonds which allow a company or government to borrow your money to fund a project or refinance other debt; Mutual funds where you get to invest your money in funds like mutual funds, index funds, or exchange-traded funds that allow you to purchase many stocks, bonds, or other investments all at once; Real estate which is a way to diversify your investment portfolio outside of the traditional mix of stocks and bonds. Real estate investing gives you the opportunity to own a home or a condo, become a landlord by renting out your condo unit, invest in REITs which are like mutual funds for real estate, or through online real estate investing platforms, which pool investor money.
Read more: 10 Smart Investments That Millennials Should Consider
5. Secure an emergency fund
Pay yourself first by starting an emergency fund. It is always wise to have money in your savings that you can use for emergencies. It can save you from financial worries and trouble.
Aside from this, securing an emergency fund can also be a good training for you to practice the habit of saving money. You should put ten to twenty percent of the pay into an account for emergencies so if anything happens, you have cash in reserve. Try to save cash consistently in small bites that you would hardly notice.
6. Save for retirement
While most millennials have established careers, they are also into the balancing act of handling their mortgage payments or settling down. When you juggle for various expenses, it can be easy for you to overlook saving some money into your retirement funds.
In order for you to avoid skipping saving for retirement, try to automate your savings. In this way, you will not see nor feel that your money is quietly working away toward your future. Always remember to build the habit of savings and slowly increase your savings over time.
You can also save for your retirement through home or condo ownership. Millennials and young adults who can purchase a home or a condo can also benefit from this with the appreciation of equity while providing opportunities for rent-free retirement living. Remember to start early for a retirement that is worry-free.
Read more: Retirement Planning for Millennials
7. Never stop learning
When it comes to financial planning, it is important to always build and improve overall knowledge about financial topics. Never stop learning and make financial literacy a priority.
You may also refer to a financial planner who can support you and give you advice in building your financial literacy skills. But of course, it would be best to take charge by reading articles, joining financial literacy webinars and subscribing to financial management-related blogs and vlogs to help you understand how to best invest your money.
Read more: 5 Local Personal Finance Blogs to Improve Your Spending Habits
Once you are armed with the personal finance knowledge, you would be able to make sound decisions – from everyday spending to long-term financial planning, and effective money management.
There are a lot of setbacks for the millennial generation but these should not hinder them in fulfilling their financial goals. They should be able to address the gaps in reaching their fullest financial potential by educating themselves and exploring other means to develop the habit of spending and explore investment opportunities.
Always remember to pay yourself first. There are many ways to do it but you have to start early to be able to get greater and better results. We might all commit financial mistakes but it is never too late to commit to being better in the future by being financially independent and secure.
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