Financial Planning for Millenials

Most people stress about money to some extent. It just never feels like we have enough... why is that? Because money, whether we like it or not, is one of the biggest factors affecting our lives every day. The amount you earn determines the food you eat, the clothes you buy, the type of people you hang around, etc.  Now the question becomes, do you want to control your money or do you want your money to control you? I think we can agree that we want to be in charge of our financial success!

To be financially savvy, you have to make an effort to educate yourself and create realistic goals then take the steps to achieve them. Financial planning can be a challenge at any age but it tends to be more difficult the younger you are.  Maybe you’ve only recently become financially independent of family and aren't very confident in your self-sufficiency yet.  You are probably paying off student loans or other debts while your checking account teeter-totters each month and you may not even have a savings account, or it is minimal.  Fortunately, with a little research and foresight, you can significantly improve your financial standing and take back control of your situation, sometimes even in just a few months. 


Here’s how:

1.  Develop a monthly budget.
Learn how to develop a detailed, realistic budget here.
2. Have a monthly savings plan.

No matter your income, you have to save a consistent amount of money each month.  Learning how to live within your means is a necessary life skill and will make the difference one day in an emergency situation.  The ideal savings rate is 30% of one’s income, but that can be extremely difficult.  A good starting place is to save $20-50 per paycheck and automatically transfer it to your savings account.  Whatever number you choose to begin with, steadily increase it each month.  I.e. if you start with $25 per paycheck in September, increase the amount to $30 per paycheck in October, etc.  If you can only spare $10, save $10.  The crucial thing is getting started and adjusting to the habit of saving.  You can do it!

2.       Stay on top of your credit score.

Check it at least quarterly.  Building credit is a slow process in your 20s, but a vital task for future buying power. Make sure you’re paying off your credit card each month or at least the minimum balance.  

3.       Know what credit cards are best for you.

If you’re score is lower than you like and/or you’re searching for your first card, consider a few things:

a.       Is this a card that I want to have long-term? Credit is strongly influenced by how long you’ve had individual credit lines open so it’s important to maintain at least one credit card for years to come.

b.      Is there a decent sign-up bonus? Most competitive cards out there offer something, from travel rewards to cash incentives for signing up for their card.  It’s worth the time to shop these options when comparing cards.

c.       What is the APR? The annual percentage rate is how much interest you’ll be charged on the overdue balance. If you always pay off your card in full you will not have to worry about this. If you pay the minimum balance or partial payment, the rest with be multiplied by the APR and you will be charged that amount as interest. You can see the math here: http://www.wikihow.com/Calculate-the-APR-on-a-Credit-Card.   Frankly, credit cards are an expensive way to borrow money if the balance remains unpaid. Don’t make a habit out of letting your balance carry over.

d.      Is there a yearly cost?  These cards are often not sustainable for 20 somethings as we are not usually big enough spenders.  Annual fee cards may still be a solid option for you if you do charge a lot monthly. Usually this would be people with families or many monthly expenses. 

P.S. The best sign-up bonuses are almost always attached to cards with annual fees.  Most often, the first year’s fee is waived to hook people in.  If the bonus is generous and you don’t need this card long-term to build credit, it may be worthwhile to apply for it and enjoy that bonus.  Just make sure you plan ahead to cancel the card before the fee comes next year!!

4.       Finally, save where you can.

Order online, look up free activities in your area, buy used.  Thrift stores can be your best friend and I mean far outside the realm of Goodwill. Some of the best thrift stores I’ve been to support specific causes that people are passionate about, like the humane society or women’s rights. People feel strongly about these causes (I know I do!) and are generous with their donations.  Plus, it’s like a treasure hunt every time and it never fails that I encounter something cool/vintage/strange  that is fascinates me.  Thrift stores can be great for everything and anything, but they have especially wide selections for books, furniture, appliances, glassware and, yes, clothing. You can (and should) reward yourself for saving money. Create a spending budget for your shopping trip and if you spend less, treat yourself to something small with half leftover amount and put the rest in your savings account :)

Hope these tips help you take control of your financial situation.  Keep an eye out for an upcoming post on investing in your 20s.

Thank you for reading and leave a comment below with your thoughts or questions :)