Help from a financial advisor may be just what millennials need in order to get on the right track with their spending.
When you become an adult, chances are that you start taking on a lot more responsibilities than you did when you were a kid. This means you acquire the need to be financially responsible. For some people, like millennials, this may be a rude wake-up call, but a necessary one, to say the least. There are things that all millennials should know or keep in mind when thinking about financial planning. Before we cover that, let’s go over what a millennial is.
What is a Millennial?
Millennial is the name of the generation of people born between 1981-1996, which makes them about 23-38 years old. They are a generation which is starting to get into the habit of making large and important financial decisions, including things like taking loans out to purchase a property and more. This group of people may feel like they are poorly educated on the process of financial planning and what it involves. Here are some things all millennials should know about financial planning:
1. Set Financial Goals
When you figure out what you want is when you will be able to establish a kind of financial freedom that you can live with. Without a goal, it will be hard for you to save your money or allocate your funds in a way that will benefit you in the future.
2. Set up an Emergency Fund
Emergencies happen, and most of all, they happen when we least expect them. It is crucial for you to have an emergency fund set up, just in case. A financial advisor may suggest having about 6-12 months of savings set aside for these kinds of situations, but they vary. Getting in contact with one about your specific situation will give you a better idea.
3. Stop Living Paycheck-to-Paycheck
Waiting for that next paycheck so you can pay your rent or mortgage is no fun. Chances are that there are ways you can cut costs in some way. Getting together with a financial planner or advisor can help you figure it out.
4. Write Out Your Expenses
Knowing how you are spending your money is important, and it is a way that you can cut back on unnecessary costs. Things like eating out too often can end up saving you a lot more than you think if you were to cut back on them.
5. Learn About Credit Scores and How They Can Impact You
If you haven’t heard about a credit score, it is time for you to look into it. This credit score can help you in more ways than one. It is how you will be able to qualify for a better mortgage loan, purchase a car, and more. It is a factor that impacts you both negatively and positively, so getting on top of it sooner is better.
6. Pay Off Student Debt
Many millennials have either graduated college or are still in school. Either way, student debt is something that is taking a toll on many of them. Developing a plan to set aside some of your regular income to pay off your student debt is a great place to start.
7. Avoid Credit Card Debt
As soon as you become 18 years old, you will likely start to receive offers for credit cards. Though developing your credit score early can be beneficial in some cases, it is not the right path for everyone to take. Avoiding credit card debt is an important step when it comes to financial planning and millennials. If you already have student debt, a credit card will just be another burden for you to have to struggle to pay off.
8. It’s Never Too Early to Save for Retirement
It may seem far, but it is closer than you think. Many millennials believe in the YOLO or “You Only Live Once” mindset, which leads them to spend as much as they can while they can. However, this can hurt them in the end. Investing in a retirement plan should begin with your first job. Your advisor can help you find one that works for you.
9. Invest Your Money
Not every investment is a good one, but making small investments at a young age can benefit you in the future. If you have an excess amount of money after paying off debt and saving, you can turn to investments. Your financial advisor will be able to help you plan this out before you take the dive.
10. Start Early
Starting early will help you in the long run, make you more financially responsible, and give you a sense of reassurance that you are doing well when it comes to your funds.
Millennials are young and have time to think about or change their financial planning process. It is important to get started and get on the right track as soon as possible. Working with financial advisors can provide you with that personalized care and advice that you need.
FAQs
Pay off debt
More than 40% of millennial and Gen Z respondents named settling their debts as a top financial goal for next year. That's not surprising, given that paying off high-interest debt has grown increasingly difficult since the Federal Reserve began hiking rates in 2022.
What are the 5 key areas of financial planning? ›
In this blog, we explore the five key components of a financial plan and how they work together.
- Investments. Investments are a vital part of a well-rounded financial plan. ...
- Insurance. Protecting your assets—including yourself—is as important as growing your finances. ...
- Retirement Strategy. ...
- Trust and Estate Planning. ...
- Taxes.
A good financial plan contains seven key components:
- Budgeting and taxes.
- Managing liquidity, or ready access to cash.
- Financing large purchases.
- Managing your risk.
- Investing your money.
- Planning for retirement and the transfer of your wealth.
- Communication and record keeping.
Pay off debt
More than 40% of millennial and Gen Z respondents named settling their debts as a top financial goal for next year. That's not surprising, given that paying off high-interest debt has grown increasingly difficult since the Federal Reserve began hiking rates in 2022.
Do only 24 percent of millennials understand basic financial topics? ›
Only about 24% of millennials demonstrate basic financial knowledge. Roughly 72% of American adults have confidence in their ability to manage their finances, but only 47% feel they are financially stable. People with a higher level of financial literacy are twice as likely to plan for retirement.
What are the 4 C's of financial management? ›
As owners of FP&A processes, today's accounting teams must be well-versed in the four C's of financial planning: context, collaboration, continuity, and communication. Today, financial planning and budgeting are more important than ever.
What are the 3 S's for financial planning? ›
The Three S's
- Saving. The methods for teaching money lessons have certainly changed. ...
- Spending. A budget is an important financial tool that can teach children how to manage money responsibly. ...
- Sharing.
The 10% rule is a savings tip that suggests you set aside 10% of your gross monthly income for retirement or emergencies. If you still need to start a savings account, this is a great way to build up your savings. You should create a monthly budget before starting your savings journey.
What are the six strategies of financial planning? ›
There are six steps in the financial planning process: understanding your financial circ*mstances, identifying goals, analyzing your current course of action, developing a financial plan, and monitoring progress and updating. This is a great question to ask if you're considering working with a financial planner.
What are the six principles of financial planning? ›
Watch to learn about six personal finance topics that can have a big impact on your life: budgeting, saving, debt, taxes, insurance, and retirement.
Key Takeaways. Millennials are confronting the distinct financial challenges they have, such as a post-recession job market, high student loan debt balances, a more expensive housing market, and growing credit card debt.
How do millennials manage money? ›
Millennials seem to be ahead of the curve when it comes to managing their finances – they're creating goals and are more likely to have a written financial plan (34% vs. 21% Gen X and 18% of Baby Boomers). They're also three times more likely to manage their money using mobile financial tools than other generations.
What do millennials value the most? ›
Millennials embody a set of evolving values and aspirations that greatly influence their choices and behaviors. This generation highly values authority, achievement, and influence, demonstrating a strong desire for control, success, and recognition.
Which generation has it the hardest financially? ›
Gen Zers are having a harder time making ends meet, let alone building wealth. Roughly 38% of Generation Z adults and millennials believe they face more difficulty feeling financially secure than their parents did at the same age, largely due to the economy, according to a recent Bankrate report.
Are most millennials in debt? ›
Americans — particularly Millennials and those with lower incomes — are becoming increasingly overextended financially: Credit card and auto loan delinquencies have not only surpassed pre-pandemic levels, they're the highest they've been in more than a decade.
Why do millennials have so little wealth? ›
Researchers claim the distribution of wealth among millennials is so uneven because the economic rewards for middle and upper-class lifestyles have increased, while those for the working class have either remained the same or declined.
What are the 6 key areas of financial planning? ›
As a financial advisor, you play a vital role in helping clients navigate their financial life through various aspects, such as cash flow management, investing, aligning personal values, risk management, tax planning, and retirement and estate planning.
What are the 6 areas of financial planning? ›
This article will discuss the six essential types of financial planning that you should be able to provide, including cash flow planning, insurance planning, retirement planning, tax planning, investment planning, and estate planning.
What are the 5 foundations of financial success? ›
These basic steps will help you grow with more financial confidence:
- Save a $500 emergency fund.
- Get out of debt/loans.
- Pay cash for your car.
- Pay cash for college.
- Build wealth and give.
