Millennials are the largest generation group in the US and in the workforce. We were the first generation to use the internet in our formative years and we're more educated than previous generations. Still, due to external factors (higher education costs/stagnant wages/longer living elders) and our educational system still using somewhat archaic methods (no shot to teachers - I love them), we're not in the financial position as generations before us, and we're still not the most knowledgeable. Thankfully, that paradigm is shifting and we're taking it upon ourselves to learn about personal finance and financial literacy. As the New Year approaches, here are 23 things I've found that every millennial should know and understand about money.
Know your "WHY" Knowing your "why" is what will ground you on your journey to financial independence. Whether it be for early retirement, traveling, moving, setting your children up for financial security, having more flexibility, flexing, etc, you should understand why you're doing what you're doing. Through the good and the bad, the easy or hard, your why will motivate and orient you to what's most important in your life.
Budgeting Budgeting is the cornerstone of building wealth. When you know how much is coming in and going out, you'll be able to see where and how to grow your money. If you're already managing other aspects of your household (ie cooking, laundry, schedules, maintenance), you definitely should be able to budget for your household.
Getting out of debt First and foremost, pay off those student loans! Unless you chose to be a public servant or work for a company [or receive a Veteran benefit] that pays off your student debt, you're on the hook for that debt. There's so much freedom in not owing anyone! Plus, reducing debt allows you to GROW your money. If you have personal debt, pay off more than the minimum and put down extra on the highest interest first, and then keep going.
Emergency Savings Fund No matter how much you plan/save/anticipate, an emergency is bound to arise. It could be a medical, home, family, or employment emergency. First, start saving in increments, up to $1K, then keep saving enough until the fund can cover 3-6 month living expenses. This account should be in a High Yield Savings Account (HYSA).
Investing We save to invest. Time in the market > timing the market. Labor income alone will not produce sustainable and generational wealth. Investing, whether it be in the stock market, real estate, or another form, will put your money to work! You should have a strategy for both short term and long term investing.
401K If you're part of a company that provides a 401K, and even better, one that matches some of your contribution, you're one of the lucky few. Taking advantage of this account, allows you to lower your adjusted gross income, invest your income, and lower your taxes! Some companies now offer the Roth 401K. If you don't max out your 401K, make sure you're AT LEAST getting the company match.
Roth IRA and Traditional Roth IRA Individual Retirement Accounts (IRA) are tax advantaged accounts for your retirement years. It's not tied to your company and there are income limitations and maximum contributions. Both the Traditional IRA and Roth IRA have their own benefits. Personally, I love the Roth IRA, because my unrealized profits grow tax free and when I withdraw, it's also tax free.
Reducing your expenses There are many ways to reduce expenses, and I'm not just talking about giving up that daily latte. Shop around for car insurance rates, start some DIY projects rather than pay for a monthly service, and consider meal prepping. These are just a few examples of ways to reduce expenses. Find out what doesn't serve you, and cut it out!
Tracking your Credit Score/Report A great credit score can give you access to a better mortgage offer, car loan, and high value credit cards. Make sure to check your credit report at least once a year. Not only is it a good habit to check your credit health/history, but you may also be able to dispute charges.
Using credit cards to your benefit First, using your credit card to pay for your expenses not only protects you from scammers, but can also save you money or give you cash back. Some travel cards, like the Chase Sapphire, have amazing benefits like rental car insurance, travel protection, purchase protection, and bonuses.
Owning vs renting Millennials are in a peculiar position when it comes to home ownership. Education is more attainable, yet more expensive and on top of that, our pay is stagnate. Due to this, homeownership isn't as accessible as it was to previous generations. Still, homeownership is the dream of many, and history has shown there's a link between homeownership and wealth building. Renting gives you flexibility and also less responsibility. There are pros/cons to both owning and renting, and you should weigh your options to fit your lifestyle and goals.
Financial management with your partner (if you have one) Partnership is amazing, and money conversations are an important part of any union. If you're in a committed relationship, you both should have an idea of how you each approach money and also, what your future goals are. They might be the same, they might be different; however, they need to be understood.
Health insurance choice You should understand your health insurance election options and also what makes sense for you and your family. Would you rather pay a low premium, but possibly high deductible, or is it better for your family to pay a higher premium, but lower deductible? Also, this is a great time to consider the Health Savings Account (HSA) if you choose a High Deductible High Health Plan (HDHP).
Life Insurance and Will This is especially important for those of us that have children. We're hoping that God blesses us with long, healthy lives. Still, we have to be prepared, because the only thing that's guaranteed in life is death. It's a touchy subject, but don't be the one that your family has to set up a GoFundMe to fund your funeral and take care of your affairs. Set up a life insurance policy earlier than later (term is most beneficial to MOST people). Set up a will that lists your beneficiaries and your intended asset allocation.
Increasing your income Our generation LOVES multiple streams of income. Not only are we hustlers and creatives, we know that multiple sources of income IS the way to building wealth. First, start with your career by asking for a raise, upskilling, or switching jobs to get a higher income. If those options aren't available to you, start looking to increase your streams of income (hint: investing is one of those ways) by having a side hustle or creating a small business with the skills you already have.
Investing for children If you have children or have children in your life who you care for, you should know about investment accounts like 529 plans, UGMAs/UTMAs, and Custodial Roth IRAs. Investing early will give the next generation security and more options for later in life.
5, 10 year financial plans Setting, and more importantly, writing down your goals, increases the likelihood that you reach them. You may not have it all figured out for 5 or 10 years, but you should have some idea of what you want to accomplish.
Job benefits PTO, leave of absences, healthcare benefits, retirement accounts, stock options, educational assistance or reimbursement, legal counsel, childcare benefits, cell phone reimbursement. These are just a FEW of some of the available company benefits. If you haven't already, take some time to review your company's benefits policies and see where you can save money or plan for the future. (We bought our washer/dryer using our company's discount portal!)
Deal hunting Also known as bargain hunting. You can deal hunt for literally everything, and you should! There are so many apps and desktop plugins to show you where you could find something that's more affordable, or an alternative that's of comparative quality. In economics, it's the customer that sets the price (though suppliers don't want you to know that). Traveling on a budget is also important! We're all world learners and while you can still go and explore, try and be creative with your experiences. I love websites like travelzoo.com and skyscanner to find great domestic and international trips.
Taxes Ugggghhhhh, taxes. Though this is one of the biggest headaches for every working individual, it's inevitable. If you only have labor income, build a strategy to understand your investment choices, yearly deductions, your credits, and how to reduce your taxable income. If you have a business, USE those deductions to optimize your net income.
Mental Self-Care Health is wealth and that includes mental health. If you weren't born with the gift of money management (who is?!) then there may be some stress when tackling all these money subjects. Make sure you're on the journey of accomplishing your goals in a healthy manner. The goal is freedom and peace, not stress.
Multiple Streams of Income The pandemic and this tumultuous economic year has taught us that we CANNOT rely on just one stream of income. No matter if you are an employee or an entrepreneur, you need additional sources of income, because things will happen. It's said that millionaires have at least 7 sources of income. They don't create those income streams because they are millionaires, they've become millionaires BECAUSE they have those multiple income streams.
At least 2 favorite money blogs/books Knowledge is power. Wisdom is peace. Entertainment is at our fingertips, but education is as well. Take some time out every day, or every week to learn something. When you have more knowledge, you'll be able to make better decisions for yourself and your family.
WISHING YOU AN ABUNDANT NEW YEAR!