Millennials have had it rough. First, it was the dot-com bust in the late 1990s. Then the 2008 financial crisis hits and causes the Great Recession. We get a few years of economic good times and now the pandemic has once again turned the economy upside down. Job security feels at an all-time low, wages are stagnant, and the housing market is increasingly out of reach. What happened to those good times our parents had? As we wade into 2022, it continues to feel like the rich keep getting richer, but we continue to be left behind. Is there any chance we can still catch up financially? What can we do to survive in this day and age? Here are some key money tips for millennials to help you manage your money in these modern times. Hopefully you can at least catch up, if not sprint ahead.
10. Be Smart About the Stock Market
Stay away (or ignore) from those who brag excessively about stock market speculation. If there’s any period of time to experience FOMO, it’s when the stock market zooms up in such a short time. You probably know some friends who made money speculating on stocks since the pandemic started. Then there was the whole Gamestop thing. However, it’s really important to tune out the noise and stay grounded. And don’t worry about being late to the party either — 51% of all new investors in 2020 were millennials, currently between the ages of 25 and 39.
The thing with speculation is that gains are usually the greatest right near the top. You may be lucky and catch an incredible runup. But it’s far more likely that you will undo years of disciplined savings and prudent investing by jumping in too late. There’s a saying that goes something like this: “if everyone is talking about a stock, it’s already too late.” It’s not a hard rule, but there’s certainly some truth to it.
The stock market had the highest expected return last March, when everything seemed like it was crashing. Where were you then? If you have to speculate, then do it in moderation. You have to guard against the possibility that you are wrong. Don’t let your enthusiasm (or greed) ruin you financially. It’s almost always better to invest for the long term.
9. Tackle That Debt
Come up with a plan to become debt free one day. I wish I could tell you to follow some three-step guide to become debt free. Unfortunately, it’s not quite that easy. The reality is that becoming debt free is a journey that will take serious work. You may not be able to pay off all your past borrowings soon, but at least figure out a plan to get there one day. Can you consolidate your student loans and lower the interest rate? What changes do you have to make to lower your credit card debt? It’s okay for the plan to be a long-term one, but start chipping away at your debt as early as you can.
8. Live Below Your Means
One way to tackle that debt is to learn how to live below your means. Don’t give yourself excuses either. Residing in a city with a high cost of living isn’t stopping you. Not having rich parents isn’t stopping you either. Your friends aren’t stopping you from spending less either. The answer is in you.
There are plenty of people with the same circumstances who are saving a ton of money each pay period. In fact, there are many savers around you who earn much less than you. Figure out what it takes. Is it time to finally learn how to cook? Can you shop smarter, seeking out better deals or sales? Maybe you need to upgrade your iPhone or other gadgets less often? The answer is probably in your credit card bills. Look through your statement and figure it out. You can’t keep running a personal finance deficit every month.
7. Start That Nest Egg
Learn about pre-tax, post-tax, and other retirement savings vehicles. Our government has given us great options to save for retirement, but they only help if you actually take advantage of them. Roth IRAs, traditional IRAs, 401(k)s, and 403(b) all have slightly different rules and unique benefits. The differences can be confusing. However, it’s worth figuring out the jargon and technicalities. Using these products can mean the difference between living in poverty in your old age, or retiring early (and comfortably).
There are plenty of millennials who already a decent chunk of savings in those retirement accounts. Yes, it takes patience and discipline to save up an amount like that. However, don’t you think it’s worth it? If you don’t know where to start, I suggest you start contributing at your employer’s 401k plan (if applicable) to get a match. Otherwise, contact a financial institution to start your own.
6. Get Tax Educated
It’s time to familiarize yourself with the tax code. Our tax code consists of a complicated set of rules. Just when you think it’s obvious that the best policy is to simplify the tax code so no one can take unfair advantage, more rules are being piled on. Unfortunately, the dream of a simple set of rules (so everyone is on an even playing field) is unlikely to ever become a reality. That’s why you can’t just sit on the sideline as others take advantage.
The more you invest in learning how taxes work, the more ways you’ll be able to keep extra money in your pockets. Learning about the retirement accounts is one way. There are plenty of others. Educate yourself about tax credits and deductions. Learn how to lower your taxable income by expensing certain things, if you can. You’ll always have to pay your taxes, but there’s no reason to overpay.
5. The Home Ownership Problem
Millennials and home ownership is a frustrating problem. For most of us, the exploding real estate market has priced out entirely. Sure, maybe you managed to save $10,000 as a down payment — except now that’s only 2% of a $500,000 house. Too low for the mortgage lenders to really care. There are plenty of cities in America where $500,000 won’t even buy you much of a house anyway. You can’t save up more money faster than the housing prices increase, so there’s really no solution in sight. What can you do?
Our advice is to start saving anyway. Keep adding to that down payment fund. You never know what the future might bring. The housing market is due for a correction, so you might as well be ready. In the meantime, it’s okay to continue renting. In fact, some people seem to prefer it. However, it’s fact that homeowners tend to do better financially as a whole than renters.
One obvious reason is house values always gone up over time. Even the 2008 housing collapse bounced back fairly quickly. But the real value is having mortgage payments. The monthly obligation can be stressful, but it’s also a form of forced savings. Building equity in your home is adding to your net worth, even if it’s not freeing up more cash every month.
You may save on paper by renting, but you’ll likely spend some of that savings anyway. The vast majority of millennials still want to buy a house at some point. Even if you don’t, your significantly other might. Why not start saving now? Even if you never end up buying the house, the savings can be transferred to another worth cause, like investments or retirement accounts.
4. Ensure Your Relationship is Financially Viable
Speaking of significant other, don’t settle when it comes to relationship finances. Disagreements over money are one of the biggest reasons that couples fight — and break up entirely. While you need to be compatible with your long-term partner in a number of ways, it’s often easy to ignore the importance of financial compatibility.
If you are to survive financially, you should find a partner who shares the same financial values as you do. For example, if you’re trying to save for a house but your partner prefers to have multiple lavish vacations every year, that’s going to be a problem. If you want to go into huge debt for an overly lavish wedding, but your partner prefers to live within their means, that’s a sign of a bigger problem than just the wedding budget.
Many couples avoid having “the money talk.” So don’t be that couple. Share your financial goals, saving habits, retirement dreams, and spending plans with your partner. Don’t be afraid to have this conversation early in the relationship, either. If you and your partner are at opposite ends of the financial spectrum, there is some serious thinking to be done. If no compromises can be made, the relationship may be doomed.
3. Learn About Money
Start getting more comfortable with finances. They don’t have to be intimidating! You’re already on our website, so that’s a great start. Keep reading about all things financial. The more I interact with people about their money issues, the more I realize that not everybody is comfortable with money management. The ones I interact with most are those who are interested in getting ahead. But imagine what the general public is like.
There are scores of people out there who don’t really care about their finances. They are living paycheck to paycheck, so as long as they have a job and can stay afloat, they are happy. Some of these people will end up doing okay. However, the norm even among the more fortunate is that they have a comfortable lifestyle while they work but then they slowly spend less and less in retirement as their money started to run out. Never mind the ones who actually run into money troubles before retirement hits.
If you don’t want to be like the rest of them, start learning now. If it feels weird to talk to your friends or family about money, it’s time to go ahead and be weird! Think about your numbers regularly. Talk to your friends about how they are saving money or what they are investing in. Ask your parents about their retirement plans or estate assets. Knowledge is power!
Just the other day, a thought dawned on me about some charitable donations I make. I realized that if I were to bunch up multiple years of donations in one lump sum instead of spreading it out yearly, then I can partially control my adjusted income. That could possibly save me a boatload on taxes. If you don’t educate yourself on your finances, you probably won’t ever come up with these kinds of saving solutions on your own.
2. Make a Budget
We know, we know. This is boring advice. Every financial website on the internet screams “MAKE A BUDGET!” at you. But there’s a reason it’s such common advice — because it works.
You need to create a thorough budget. Make sure it includes sections for your retirement savings, but also for fun things like entertainment or vacations. Having a budget is a great way to live below your means. Your budgeting strategy is entirely up you. It’s okay to put the pedal to the metal and save aggressively for a short period of time. It’s also okay to save less for a while because you want to take that trip you’ve been planning for years.
Whatever you do, create a budget that is sustainable over the long term — then adjust it when necessary. I know people who tightened up and saved 80% of their income for a while, distinguishing six-figures of debt in two years. While they were extremely disciplined for those two years, saving 80% just isn’t feasible for almost everyone else. Plus imagine the burn out of not being able to spend money on anything fun for 24 months. Make your budget (we have some tips here and here and here) and use it guide your financial future to success.
1. Think Long Term
Appreciate the power of long term by not being so focused on the immediate future. Here’s a personal example to explain what we mean. Twenty years ago, my uncle was making six-figures a year. He decided to quit work at age 45 because his company was downsizing and he was offered a handsome severance. At the time, all he could think about was the big pile of money dangling in front of him. He was sure that he had no reason to work anymore.
As a result, he went from being a highly compensated executive (living an extremely lavish life) to a retired man living a very modest life over the past two decades. There’s even talk in the family that he will have to sell his home soon and downsize just to make ends meet. Some of his peers, meanwhile, kept working into their 40s and 50s. Many of them live in mega mansions now. I heard one of his former subordinates even travels by private jets these days.
His mistake was not thinking about the long term. He simply underestimated how inflation and living expense can add up over a long period of time. Frankly, some of us can’t wrap our heads around living into our 80s or 90s and realizing that living expenses don’t just go away because we’re old.
So when you plan for the future, consider the loooooong term future too. Sure, planning for the next five or ten years can seem more important right now. And maybe it is. But don’t ignore that distant financial planning either. Learn about the powers of compound interest and the dangers of inflation. You can’t expect your living expenses today to be the same in 20 or 30 years.
The Bottom Line
The year of 2021 is (hopefully) going to be remembered as the year we finally dig ourselves out of this pandemic hole. For millennials, though, it just caused many of us to end up in deeper holes than we already were. As we stress about our jobs, the housing market, student debt, and retirement savings, there are no clear cut and easy answers. Hopefully 2022 will bring more prosperity.
The harsh truth is that it’s unlikely that things will magically get easier for millennials. Even if the government does offer some student debt relief or the housing bubble pops, the brunt of the financial responsibly will still fall on you. Use the tips in this article to start yourself down a path of financial success.