Each generation comes with its own unique challenges. For millennials, this often means a lower degree of financial literacy. Finances can be daunting and confusing, but there are several strategies that can make them more manageable. Below are five ways to help millennials take the leap to financial literacy and security.
- Prioritize. When you have a job – whether it’s during the school year, summer or after graduation – it can feel like you have a surplus of money to spend. However, it’s important to identify your most pressing financial needs. That may mean paying student loans, rent or car bills. As soon as you establish your financial priorities, you will more easily be able to identify when you have extra money to spend, and when you should allocate your paycheck directly to these expenses.
- Save early and often. Retirement may seem far away, but there’s no better time to start saving than the present. Start saving for retirement ASAP, as you will never have more time than now to let the money grow. And, when an emergency arises, you will have plenty of funds available to cover those unexpected expenses. As a rule of thumb, try to allocate 10% of your paycheck toward savings. If you can’t comfortably set aside 10%, start with a smaller percentage. Every penny counts.
- Stay away from the bare-minimum. The default retirement plan contribution rate for many employers is 3%. This is much lower than the 10–15 % that most Financial Advisors will recommend. Furthermore, the average employer match is 4.5%, so do your homework and be sure to contribute a percentage equal to your employer’s match cap at the least. Don’t miss out on free money!
- Learn to build credit responsibly. At first glance, getting a credit card may seem like a magic solution to your financial situation. However, misuse and abuse of credit cards can lead to even more worries. Credit card debt, especially when combined with student loan debt, can pile up quickly. To build credit, start by opening a credit line that doesn’t exceed your monthly income. If you can comfortably meet your credit payments, feel free to gradually increase your line of credit if necessary. By putting yourself in a good position to cover your monthly credit bills, you will establish a strong credit score, a necessity for future investments.
- Check, update and follow up. Many of the financial deficiencies exhibited by millennials could be reduced or even eliminated by remaining diligent about your finances. Frequently check your account and statements to assure that all charges are correct. Update your personal info (including address) whenever anything changes. Save all statements, emails, forms and other relevant information that you receive in the mail and electronically. If you notice something unusual or a discrepancy, contact your financial organization immediately to resolve the situation. While your bank may eventually notice these errors on their own, it’s best to act as if you are fully in control of your finances. This responsibility will translate to all aspects of your financial life.
Finances can be a nerve-wracking topic, especially for millennials. But by following these tips, you should be able to stay on top of your financial life and totally own it! For more tips and resources, visit our Money Smarts blog.
