I MAY EARN MONEY OR PRODUCTS FROM THE COMPANIES MENTIONED IN THIS POST.
I saw a joke on Instagram yesterday: “being in your twenties is mostly figuring out how your friends can afford their lifestyle.” I honestly think about that a lot when I speak to my friends who go on vacations very often and don’t really think about the future. I wonder: do they have family money, do they plan to start saving later?
Millennials have financial issues that can be addressed RIGHT NOW (before it’s too late).
1) Manage your debt
Depending on the law where you live and the terms of your debt, you might be repaying a small to a considerable amount of debt, which can become crushing. Take an active role and come up with a plan to pay your debt: list your loans, see which ones can be refinanced at cheaper terms and come up with a timeline to get rid of these loans as soon as possible. I consider myself lucky to have had some financial education in school, but even nowadays, kids coming out of high school or university without an accounting course have no idea how to handle their finances, and that is a tragedy…
Simple rules about debt:
-Pay at least the minimum amount on time. If you don’t, your credit score will go down and that will make it harder and/or more expensive for you to obtain further credit in the future (like a car loan or a mortgage…).
-Beware of credit cards. Credit cards are great to build your credit history as long as you pay on time and don’t spend too much. Remember that credit card interest can be very high. I have also noticed that the psychology of a credit card is much different than a debit card: seeing the balance go in reverse and my debit account stay the same was unsettling when I first got my credit card and made it hard to budget.
-Stay away from any consumer credit you don’t really need. Say you want to buy a second car you don’t really need or a boat to go fishing on the lake during the summer. Think about the impact a consumer credit may have on your future credit terms!
2) Figure out your retirement money
If you live in the UK like me (or any other country that has pensions) and are an employee of a company, one of your benefits is a professional pension plan. Most plans offered by UK companies these days are DC plans, where it’s up to you to handle your retirement money (the company will only contribute money to your pot). A lot of young people think that this is something to look into at some point in the future because it doesn’t sound relevant now, but I think it’s very relevant now. If you don’t do anything, your money will go into the default option, which can be a terrible one, depending on how your company has set up your retirement plan. Some companies’ default option is 100% in UK equities, which is horrible in terms of diversification… If you take control of your pension plan today and monitor it over time, you can make sure to adapt your portfolio as you progress in your career and whether the market cycles.
Investing is not the only thing you have to think about: your employer might have different contribution options for you: if you contribute 2%, they might contribute 2%, but should you decide to contribute 4%, they might contribute 3%… And on a monthly basis, with compounded interest, over 40 years, it will make a HUGE difference!
3) Build an emergency fund
Yep. Before your thirties, and even before you are 25 if you started to work early if you can. It doesn’t have to be big: £1,000 and above. The Washington Post found that 63% of Millennials would have difficulty covering an unexpected $500 expense. That is a shocking number, as an unexpected expense of $500 and above can easily happen: a medical bill, getting fired, lawsuit, liability, deposit, etc. As you get older, you can grow your emergency fund, and should be able to cover pretty much any emergency that might not covered by an insurance policy.
Start by putting a few £/$/€ here and there every month and you slowly start building your fund. Note that this money doesn’t have to stay in cash, but you can also earn a safe interest by putting this money in a savings account or in very safe financial instruments.
4) Be proactive about your salary
I was very happy when I signed my first job. The salary was decent, I expected a raise of about the following year and a decent bonus. Unfortunately, I did not get a raise, and my bonus (by my industry’s standard) was extremely disappointing. The day I got the news, I started looking for other jobs, it took a few months, and I even gave up another (probably very small) bonus, but I moved to another company, got a much bigger raise than I was expecting in my old firm. My point is, if I had stayed at my old company, I would probably still be unhappy with my pay right now. You might think that this thinking is unethical or wrong, but the truth is, unless you own your business, or have close relationships with the decision makers, a business will not exceedingly reward you for loyalty, and these early career years will set a benchmark and define your future earnings. If you don’t get this right and become pro-active, you could end up underpaid for a very long time, and hurt your finances at the same time.
So, if you think you deserve it, ask for a raise, and if you think it’s worth it, look somewhere else!
5) Draft a budget
If you are a Millennial and you are reading this, you are probably on your phone or laptop, and have accounts to email providers, social media, etc. Our generation is generally tech-savvy and we can take advantage of that in many ways. One of them is to do your budgeting online. A lot of tools nowadays can help you such as Mint or MoneyDashboard. While these two examples are websites that allow you to track income and expenses, and keep you in line with budgets, there is a new generation of tools that use artificial intelligence and new formats to speak with you about your finances. You might have seen these robots pop up on Facebook and other social medias.
Drafting a budget from scratch is hard, and doing it manually in Excel takes time. With these tools, you can pair your bank accounts and everything runs smoothly. You can have an overall picture of your finances at any moment and run in-depth analyses of your expenses to spots areas where there is room for improvement.