Financial Planning for Millennials & Young Adults

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Teaching Younger Generations Financial StewardshipIt is a well-known fact that millennials face unique challenges in their lives.

They have to spend more money on housing and rents than their predecessors. For example, 73% of New York’s population and 79% in San Francisco would attest to this, according to the U.S. Census Bureau and Zillow. While it’s true that low down payment mortgages are available for people with good FICO scores, millennials also need enough money left over after meeting such commitments to live a relatively stress-free life. If you add up all these costs, it becomes clear that young people just starting out in the workforce will need every extra penny they can get hold of — especially when 63% of them owe an average of $10,000 in debt.*

Financial security is an important factor for most individuals. It is the ability to maintain a certain lifestyle and handle any unforeseen events that may arise (like injury, disability or unemployment). A secure future requires careful planning and financial discipline — but this might be easier said than done. Millennials or young adults face unique challenges like high rent costs and higher education costs; their income levels are also typically lower. This means millennials need to make prudent decisions regarding money management and savings.

There is no dearth of information on investment products and strategies on the internet these days. However, there is just too much noise out there and it is difficult! How do you separate intelligent advice from unhelpful recommendations?! Here we list some useful pointers that we as financial advisors  give our millennial clients on saving and investing, which helps them build a solid foundation for their long-term goals.

1. Make Saving A Habit

People often begin to save money in February because of the holiday rush that follows December celebrations. This is hardly an ideal time to start saving. You should start whenever you begin earning — put some savings aside after paying your dues so you can get used to it. Just do something, even if it is small, quickly. You can start putting more away later.

Financial planners recommend setting up automatic transfers from your checking account to your savings account so you don’t have to think about saving each month. Start out with maybe 5% of your income and increase this by 1% every three months until you reach 15%. Once you become used to living on the remainder, you can begin putting it towards other investments, like college tuition or home down payments.

Long Term Planning2. Have A Long-Term Approach

If you’re like most millennials, then life probably looks something like this: you get your first job and perhaps a credit card; you may move out of your parents’ place and start paying off student loans; you might even buy a car — all on credit. This is not what financial planners would advise you to do. Debt piles up more debt on top of an already existing burden. Instead, financial planners recommend having some form of emergency fund (three months worth of expenses) before anything else. Saving for retirement should come second to creating and maintaining a financial security blanket.

The earlier you start saving for retirement, the better it will be for your family’s future. There is still time to make amends in this regard. You should also try to pay off credit card debt as soon as possible. Because of credit cards’ steep interest rates (around 15%), you may pay almost double your original dues each month!

3. Know What You Need To Know

This might sound like a no-brainer, but young adults often enter into short-term relationships or cohabit with people without knowing their financial past. For example, one person may be in heavy debt when they move in together. Imagine the day when they realize their partner has been dating other people at the same time! This can put you in a really bad spot.

Some millennials also get surprised when their spouse-to-be tells them that they are entitled to half of the assets and debts accrued during the relationship. In many states, co-habitating is co-financing, with or without a common checking account, common credit cards or other jointly owned property. This is why you should always find out your partner’s financial history before committing yourself to him or her. Avoid the unpleasant surprises later on. Consider keeping separate bank accounts until after you marry to retain some financial independence and avoid misunderstandings. But consider a “trial” joint checking account to share expenses, like rent and utilities. Test out the financial compatibility before marriage.

Insurance for parents4. Basics first: Insurance is a must

Knowing about the basics isn’t always cool, but it will definitely help in protecting you financially in case of any unforeseen circumstances. Make sure to have your homeowners and auto insurance policies up to date so you are protected in the event of a break-in or accident. Also, get life insurance for yourself because you never know what fate has in store for you! A Certified Financial Planner can help you understand your policies and help you find a second opinion from an insurance agent.

5. Only invest in things you understand

Millennials often jump into stock investments because they’re a hot topic among peers and the media. But most of them don’t even know what they are, which can be expensive! This is why it isn’t recommended to put your money in something that you aren’t too familiar with.

It is also recommended that you don’t put all your eggs in one basket; diversification is definitely the way to go for millennials. This means that you should not invest in only one stock or even one type of stock (e.g., tech stocks). Try investing in mutual funds instead, which will spread your risk across various investments. If you want further guidance, then you can contact our experts . Financial planners help millennial investors with their Finances, Investing & Taxes.

6. Take Advantage Of Your Employer’s Benefits

More workplaces these days offer their employees some form of benefit, be it discounts on work supplies, free gym memberships or casual Fridays where they don’t have to wear suits. You can even ask HR if they offer matching contributions into your 401(k) that could instantly boost amount of money you put into it.

Invest with your goals7. Invest according to your goals

If you’re looking to save up for a down payment on your first home, then you will need to set aside roughly 10% of the cost every month and aim for a30-year mortgage term. If you want to pay off student debt or get yourself out of credit card debt, then it is recommended to go after high-interest debts (20%+) first.

Millennials face many unique challenges when it comes to saving, investing and planning financially for their future. There are certain things that must be done in order to properly navigate these ever-changing waters. Millennials should begin by putting money aside after paying one’s dues, have a long-term approach for saving, know what is needed from one’s partner before getting into a serious relationship, take care of one’s basic insurance needs, make use of their employer benefits to save money and seek advice from unbiased financial counselors. This will help millennials navigate the murky waters that lie ahead.