Investing and Finance for Millennials
If there’s a generation that will greatly benefit from the advances of financial technology, it’s the Millennial generation . However, on the other side of the same coin this generation has lived through the great recession and is now dealing with exponential growth of student loan debt.
The combination of these events is leading to an increased need for financial education for everyone, but more specifically the Millennial generation. This article will begin to dive into a few areas of finance that every Millennial should consider. As the times continue to evolve, so should the need for greater understanding.
First up is the topic of personal finance. With several different ways to spend money, each less painful than the last, it can be difficult to monitor your spending. Credit cards are extremely easy to obtain and loans are much the same. That in mind, the place to build your personal finance foundation is through a budget.
Building a budget can sound intimidating but the reality is it’s simply taking the time to dictate where your money will go. For example, if you get paid bi-weekly, then you’ll want to budget every other week where your money will go. The premise behind budgeting is you know where your money is being spent and you don’t lose money spending mindlessly on fast food or online.
After you’ve built your budget, you should aim to eliminate all your debts as quickly as possible. Debt are a cash flow killer and limit the amount of money you can allocate towards investing or saving. You can utilize various methodologies in eliminating debt such as the debt snowball (pay off debt in order of smallest to largest) or debt avalanche. The goal is to find a method that fits you best and stick with it.
The last tip in controlling your personal finance is to use cash as much as possible and eliminate the dependence on credit cards. To help limit your dependence, ensure you have an emergency fund in place because should your car require repairs or you become ill, you’ll have cash to cover the expense.
When shopping, take out physical money instead of using your card because you will be less likely to spend cash then plastic. Also, you’ll limit how much spending you can do by leaving your debit card at home.
The next item Millennials should focus on is investing and investing early. Some believe there’s a real risk that in a few short decades, social security may not be around, thus forcing people to truly fend for themselves. Regardless of your stance on the topic, it’s important to ensure you are in 100% control on your finances.
An investment that may be your largest asset during your lifetime is a home. Home ownership is a milestone across the country, and to properly prepare for your first purchase, you’ll want to ensure the following,
- Have down payment of at least 20%. This is to avoid PMI (Private Mortgage Insurance).
- Always get a fixed rate mortgage and if possible, apply for a 15-year mortgage instead of a 30-year if you can.
- Paying off your home early not only gives you an asset, but you can then look to rent it out and earn income.
Everyone’s situation is different, but these are a few tips to consider when looking to purchase a home. The goal is to turn this into an asset, not a liability.
The next place to build assets are in the stock market. Here is where you can slowly begin to build a portfolio that hopefully appreciates in value over time. Selecting the appropriate stocks take time and research. Choosing low cost index funds might be the best way to get started. If you are someone who isn’t too sure where to start, you may want to reach out to an investment professional and they can help you build a proper portfolio.
The final topic for Millennials to consider is their retirement. Again, there is a growing group of individuals that believe social security won’t be around, putting retirement 100% on your shoulders. However, you should never rely on someone other than yourself to build a proper retirement portfolio.
First, ensure you are contributing to your 401(k) plan early and often. You should set up recurring payments out of each paycheck and if your employer matches, ensure you are taking advantage of the match. Starting early will allow your investments to compound over time, growing slowly but effectively.
Secondly, if you do not have access to a 401(k) plan you can contribute to an IRA. An IRA has essentially the same benefits as a 401(k) with the main different being a 401(k) is provided by an employer while anyone can open an IRA. Within the IRA, you can build your desired portfolio and begin saving. If possible, try to reach the maximum contribution limits.
As far as Millennials go, living through this major financial shift in both technology and historic events can be an added benefit as well as open the door for new struggles. However, by focusing on proper financial health, investing early and often, as well as using the proper retirement vehicles you will set yourself up for current and future success.