Millennials face a lot of financial challenges, from student debt to tough employment markets. But one member if that generation, Ashlee Veneman, a senior planning analyst at The Planning Center in Fresno, Calif., has some good answers for Generation Y:
Article By Ashlee Veneman, a senior planning analyst at The Planning Center in Fresno, Calif
I came across a very interesting meme the other day. A user posted on an Internet site that, when her parents were her age, they had a mortgage and two kids. However, at the ripe age of 27, she orders food from an online app for delivery to her one-bedroom apartment, not even having to interact with the world.
Of course, I chuckled – mostly because there is honesty behind the humor. Millennials are referred to as being everything from entitled and lazy to altruistic and over-educated.
I was recently consoling a new client a few months shy of her 28th birthday. As she stared blankly ahead, she said she had received an invitation to her 10th high school reunion this year. It made her reflect on the fact that she felt eons behind where she should be in life, despite graduating from college, living independently and having a career. It broke my heart to hear her view that attaining financial and independence was comparable to climbing Everest.
I had to remind her, as I remind many of my friends, clients and peers, that until recently we millennials had never known an economy that wasn’t in recession. Millennials have a tough time identifying the true scale and scope of the recent global financial crisis. We had nothing to compare these troubling times to. All we knew was that our dreams were thwarted.
The overarching theme in all my meetings with millennials is the quest for affirmation. Am I going to be okay? Will I ever even be able to retire? Why am I not as successful or as far along as my parents were? Not to mention the overwhelmingly fear of debt we feel, and the loss of sleep over ever being able to pay it off. And although it may seem we are off to a slower start, or have a “failure to launch” problem, our life spans will also likely be longer.
I tell my millennial clients to concentrate on the following key areas:
- Focus on cash flow.Having a handle on your cash flow is the absolute cornerstone to building and managing your financial landscape. I’m partial to my firm’s software First Step Cash Management, but apps like mint.comare also helpful in automating your budget. A good old-fashioned spreadsheet listing your monthly take home pay minus your fixed expenses and savings goals will provide you your monthly allowance as well.
- Set aside cash reserves.I like to see clients have at least three months living expenses set aside in cash reserves to prepare for any unforeseen emergencies. Even if you’re rooming with your folks, you can avoid charging a broken phone or blown out tire if you have cash set aside. Open an account with an online savings bank to most likely earn a little more than your local bank, and set up transfers to come out automatically.
- Use credit cards wisely.It’s perfectly fine to actively use credit cards to improve your credit score, especially with all the beneficial rewards systems out there. However, only use the cards for minor purchases you’d already be making and set the card to pay off automatically each month. This will help you avoid late charges (which hurt your credit score), plus ensure you pay no unnecessary fees and non-deductible interest.
- Retirement planning: the sooner the better.That 401(k) plan at work is no joke – ditto for other retirement plans, like a 403(b) and a 457. If you’re fortunate to have access to one, start contributing as soon as you’re eligible (your HR manager will help you figure out when that is). The sooner you save, the more you will have.
If your company provides a match, contribute at least that amount to essentially collect free money. Every dollar you put in lowers your taxable income dollar for dollar as well, unless you opt for the Roth option, which you fund with after-tax money. This means your dollars will come out tax-free at your retirement (note that all employer’s contributions are pre-tax and not Roth). If you don’t have access to a retirement account at work, feel free to open a traditional or Roth IRA or even an account sponsored through the government at myra.gov.
- Research the right living arrangement.I encourage you to do as much research as possible to determine 1) if a home purchase is really for you 2) a realistic amount you should save for a down payment, closing costs, etc. 3) certain loans, discounts and benefits that are available to you, especially if you’re a first-time home buyer, a military veteran, a state or government employee.
I was shocked at how unprepared I was and how little I knew when I started the process, even after doing some preliminary research. A Realtor friend was able to assist me, but feel free to do solid online research, read books and talk to trusted family and friends as well.
Millennials have the advantage of many years ahead to save, invest and plan for the future. Make sure those years are not wasted.