Millennial Money Matters
The moment will come for many a grad: your parents separate your finances from theirs, and you re-think the entirety of your spending. There’s a learning curve when it comes to managing your finances—learning to save takes practice and real effort, and to fall behind is to put yourself at a serious disadvantage.
Having both grown up in New York City and spent a significant amount of time in San Francisco, I feel somewhat desensitized. I accept that grocery prices are ridiculous, and closet-sized spaces come with outrageous rents. But I’m not yet accustomed to paying for them myself. Living on my own and interning in San Francisco, I find money on my mind more than ever.
Approaching this pivotal moment, I hear similar financial concerns echoed frequently by my fellow students and young adults. With college tuition and student loans at all-time highs, today’s generation faces a unique set of challenges when it comes to tending to their finances.
I didn’t want to have to start thinking about these concerns, and you likely don’t either. But I found that with a few small habit changes and minimal effort, I was able to address these issues and begin to set myself up financially. This post will discuss some of the biggest financial concerns that my peers and I will face, and some ways I have begun thinking about them.
1. It’s hard to live on a budget without feeling like you’re sacrificing too much
I remember feeling social pressure from the first moment I had expendable funds. It’s easy to get into the mindset of noticing what others have and focusing on what you lack, leading to a cycle of greater dissatisfaction and spending.
The feeling that you are going “without” is certainly unappealing, but you can achieve a degree of balance when it comes to budgeting, allowing you to spend wisely and feel satisfied with your quality of life.
Many begin their budgeting by following the 50/20/30 rule: set aside 50% of earnings to cover basic needs, put 20% towards dealing directly with financial issues (savings, paying off debt, etc.), and use the 30% left over to maintain a comfortable lifestyle, whether this means covering SoulCycle classes, trips, clothing, or morning coffee.
I’ve begun to apply these guidelines to my own finances, as well as basic principles such as:
- Spending conservatively if I know I am going to splurge on something in the future
- Comparison shopping when it comes to groceries and travel
- Paying attention to my past personal spending weaknesses, and where most of my money has gone (e.g. clothes…)
These ideas are simple, but have enabled me to live comfortably (and set aside enough money to fund some post-graduation traveling!). There are numerous budgeting templates out there to choose from, but any one of them will make finances more manageable than having no plan at all. Budgeting and knowing where my money is going is one of the financial factors that I had the most immediate control over and it was perhaps the easiest to begin with.
2.The pile of debt seems insurmountable
Now more than ever, with student loans and credit cards to pay off, students are graduating and entering the workforce with debt. Many have reacted by adopting an unsettling “ignorance-is-bliss” attitude. When you graduate from college, you are likely earning the least that you ever will, while facing a large amount of debt. From this disadvantaged position it is natural to worry about ever razing your mountain of debt, elevating your financial status, and having enough of a cash surplus to actually set some aside and save. But until this debt is paid off, you’re at a loss. Pretending it doesn’t exist will only increase the duration of your stresses.
Finances become more manageable when you create an actionable plan and a time frame for yourself—say 3 to 5 years. The best option varies based on your personal debt situation, but perhaps you can consolidate your debt and make more aggressive payments, leaving yourself debt free in the much nearer future. In the meantime, ensure that you aren’t creating more debt for yourself by spending unnecessarily. One method used to cut back on spending and save more is to put away credit cards and opt for cash when making payments.
Debt is a unique and individual situation, as is eliminating it, but it should be made a priority.
3. It’s hard to grasp the jargon (but embarrassing to admit)
“What’s the difference between simple and compound interest?” “What’s an APR?” “…A prepayment penalty??”
Financial education in the United States is not where it should be. No one should presume that they have the prior knowledge and financial literacy to adequately manage their money when just starting out. Debt can often be attributed to a lack of a solid understanding of how and when to use a credit card, and whether or not it can truly be paid off in a timely manner. Even if you have a plan for your finances, it’s good to read up on basic financial principles, and to fully grasp the terms of your credit cards, any loans, and any health or retirement benefits offered by your place of work. The only financial education that I’ve received has been from my parents, some of which has admittedly fallen on deaf ears.
While millennials may face an extended list of unique financial difficulties, there is also a surfeit of easily accessible information available on how to combat these issues. I have begun by consulting financial blogs (look out for our upcoming financial fitness bootcamp series), Quora, and news sites, and directing financial questions at coworkers and my parents. Additionally, there are Coursera course offerings, free online classes, and financial coaches.
Once you become aware of any gaps in your financial knowledge, fill them.
4. Emergencies are inevitable, and often require spending
There will come a time when you face some surprise financial or life problem that requires capital to fix. You may get into an accident and have medical bills to pay, lose your job, or have to pay to repair your car in order to get to work every day. It is prudent to prepare for the transition between having your family nearby to help you deal with emergencies, and being entirely responsible for yourself and your well-being. Every time I’ve visited San Francisco, I’ve had to take at least one trip to Urgent Care, adding prescription costs to my already high cost of living (some of us are more accident-prone than others…).
It is practical to begin building your emergency fund from the time you start earning. This means setting money aside to cover any unexpected emergencies. A good rule of thumb is to have 3 to 6 months’ worth of expenses put away, which may require saving up for quite some time. I find this concept intimidating, but if I break it down and focus instead on setting aside a reasonable amount of money each week, it feels less daunting. By breaking up your saving week to week and thinking about smaller amounts, the concept of an emergency fund becomes more manageable, giving you more breathing room down the line. I’ve factored this amount into the 20% of my income that goes towards financial issues, and am trying to stay very disciplined when it comes to spending on groceries and travel until I feel I have enough set aside to deal with any emergencies.
5. It feels like you may never be able to save enough to retire
Collective retirement stats across the U.S. are grim. Making contributions to your savings in your 20’s gives you the best possible chance of being an outlier.
It’s hard to focus on what is far off. Especially if you’re starting from a place of debt, the concept of actually setting aside money to save and put towards your retirement seems a lofty goal, and there’s no guarantee of a social security safety net to rely on. Planning for your retirement as a young professional is arguably one of the largest financial issues you’ll have to deal with, and delaying saving by just a few years can put you far behind. With no dependents and fewer obligations, this can actually be a great time to start putting money aside.
Employers offer different benefit options and retirement accounts, but by contributing as much as you possibly can now, you can increase the likelihood of living well later. If possible, you can sign up for auto-deductions that take retirement savings directly out of your paycheck. By automating as many savings and deductions as possible, the risk of succumbing to the allure of spending instead is eliminated (or at least significantly lessened).
I’ve been conditioned to believe it’s best to have these concerns and their solutions at the forefront of your mind as you transition to having full accountability and responsibility for yourself and your financial decisions. Progressing along a positive financial track when you are young, thereby avoiding overwhelming concerns with money in the long run, is a major facet of investing in your future happiness.
Financial independence is the ultimate goal. When it comes to being financially proactive as a young professional, it’s often simply an issue of doing something versus doing absolutely nothing. I’ve recently made the switch, and immediate positive impacts on my savings—as well as confidence and feelings of self-reliance—are clear. There are numerous financial skills to develop before you reach proficiency. These are some places to get started.