According to a Business Insider article, “American millennials have an average net worth of less than $8,000, meaning they’re financially worse off than any other generation before them.”
Most millennials have $5,000 (or less) with 58% of them having a balance under $5,000 in their savings account, which won’t last too long as an emergency fund. A lot of people in their 20s are dealing with large amounts of student loans and credit card debt which leaves them to live paycheck to paycheck.
While financially planning doesn’t sound too enticing when you’re young, it’s important to make smart investments with your money over time to add up in the long run. There are basic strategies you can incorporate into your financial plan regardless of your income, which will help you set a stronger foundation to start saving money.
1. Create a budget
Budgeting is crucial, regardless of how much money you make. It may not be the most fun thing in the world, but it will act as a guide to help you figure out the reality of what’s going in and out.
When you can see how much goes out every month (for bills, eating out, your gym membership, whatever) you can more easily see if certain investments are adding up a little too quickly (such as buying lunch from that cute cafe everyday).
If you calculate everything and see that you’re spending more than you make, you can now decide to make small changes that will eventually add up or cancel an unnecessary subscription. There are a lot of resources available to us now to help too, with several financial planning apps on the market.
An easy formula to follow is:
- 50% for expenses (housing, food, bills, etc)
- 20% for financial goals (credit cards, retirement, rainy day savings or investments)
- 30% for variable expenses (vacations, eating out, shopping, etc)
2. Work on building your credit (and keeping an eye on your credit score)
Your credit score is a number that will follow you and affects a lot of big life decisions you’ll be involved in (such as a car payment loan, mortgage, or employment). By building your credit, you will get a better long-term payment rate when applying for any form of loan.
Keeping an eye on your credit score is also important so that you can see where you stand or improve if needed. There are a lot of online resources available to check your credit score online (so no excuses that you didn’t know).
3. Create a plan for your debt
Make a list of everything you owe so that you can be clear on the facts. Then compare it against your budget so that you can properly gauge how much you can add towards the payments. Start with the highest interest rates and pay the minimum on the rest. This will save you the most on interest. Then once you’ve cleared the highest interest bill, continue moving down the line.
4. Create an alternate source of income
At least 37% of Americans now have a side hustle. Having a side hustle is a great way to pick up extra cash on your own schedule. This is also a great opportunity to get creative or pursue that hobby that you’ve been wanting to perfect.
There’s endless opportunities available now as more people have taken up jobs such as Lyft, Amazon Instacart, or Wag to make extra cash. You could even experiment with your passion by using it as extra income while building your expertise until you can further pursue your career in a different direction.
5. Start Saving (and investing)
If you have the ability to start investing …do it! Even if you’re not sure what to invest in yet, start small. Put aside a little money every week and it will start to add up. The important part is consistency above anything, even $10 a week over a year could mean a couple thousand in few years so don’t push it away just because you don’t see a point in collecting smaller amounts.
Doing some research into investment types is another key to this step. It’s hard to incentivize yourself when you feel like you don’t have a plan, but knowing about the different ways you can invest will help this. Try going on Google and looking up ways to invest your money. Once you have a better idea about real estate, stocks, accounts, bitcoins (whatever sparks your interest) then it may be more motivating to start collecting your money for a purpose. Knowledge is power.
Content courtesy of Michelle Finn, Founder of Pop Design Shoppe
CONTRIBUTING AUTHOR, MICHELLE FINN
Michelle has a strong marketing background in a versatile set of roles including social media, events, and field marketing. She fell in love with design and combined it with her skills to create her business, Pop Design Shoppe. In the future, she hopes to continue her work within design or the arts (including interior design, fashion, the visual arts, and event design). She wants to continue working on projects that create impact. Her perfect day includes a morning workout, sunny day at the beach (preferably with her dog joining) followed by an evening out with friends at an event.