Millennials have a bad reputation for failing to save enough for retirement, having no financial clue and generally being impulse buyers. However, this is more a superficial treatment of the problems, while in fact, there are underlying reasons for this exterior behavior.
Why are millennials having a hard time saving?
The percentages of Millennials who got a higher education are almost double compared to their parent’s generation, and the tuition fees are about four times greater for the current students, which can only translate to one thing: student loans that are almost 25-50% of the price of a home. Therefore, this generation is postponing marriage, childbirth and other commitments. They are not selfish and spoiled, in fact, they are just poorer than their parents.
Salaries have also increased nominally, but when you apply inflation corrections, it comes that it barely stayed the same while education and housing grew 2-10 times.
On the other hand, due to increased connectivity and knowledge, these are one of the most skeptical generations, therefore less inclined to spend recklessly.
In these conditions, maybe it is time to reconsider the Millennials and acknowledge that maybe they are doing their best and more, it’s just the economy that is not encouraging savings. So, what are the chances for this group?
Seeing the big picture
Of course, not all millennials are misunderstood finance geniuses, some of them still need to learn to live the adult life the right way and figure out that paying your 401(k) is a bit more important in the long run than getting the latest iPhone. Here are four ideas to get started.
1. Student loans
Repaying your student loans can take years, but with some organization, you could get out of debt in just a few months. It might be a good idea to put this behind you before you get into other types of debt, like a house mortgage or even loan for your dream wedding. Make a clear repayment schedule by employing every trick you can think about, but mostly keeping staying on track with monthly or fortnight payments.
2. Saving for 401(k)
Although you think that retirement is far away the truth is that each month counts and as soon as you start, the larger your fund will be. Never underestimate the power of compound interest and the diligence of putting aside even a small amount. If you have trouble choosing between different types of savings, look at this dedicated piece. For a start, just try to put as much as your employer can match to your 401(k) to avoid leaving free money on the table.
3. Picking the right credit card
Having a good credit card is a financial investment. Since your credit history has a significant impact on your credit score(35%), it’s a way of building up that large FICO number that will help you get the house of your dreams or a better rate if you refinance or consolidate existing debt. A financially savvy millennial will compare different options regarding APR, fees, minimum repayments, cash-back or bonus options and any introductory interest rates.
4. Housing arrangements
Your crib choice can have an impact on your finances. Living alone in a rented studio in the city center is by far the worst option. On the other end, the less desirable option of moving back with your parents sounds like a first adulthood failure but is extremely sound from a savings’ perspective. Of course, there are mid-way solutions like living with roommates or even getting your own place, but looking at the current state of the housing market it’s less feasible.
Saving, like eating right, is all about the good choices we make on a constant basis, ignoring the occasional drift-offs. It’s boring, it’s not glamorous, but gets results. After you have done you big life choices, it’s time to take care of the things that impact you a month to month to include them in your budget.
Think about all the things you pay monthly such as gym, cable, Internet, phone, utilities and medical services. Make a list of the costs and of the usage degree. Cut completely everything that is below 50%, renegotiate what is between 50-80% for a smaller amount and keep what you use over 80% as it is. Make an estimate of the new costs. Since you were spending that money anyway add it to your savings. Check your bank statement to see if you have recurring subscriptions that you forgot about and cancel those first.
Walking is not always an option, but a bike or public transportation can get you further away for your dollars. Just taking an Uber, every time, will not get you closer to living debt free or accomplish other big plans you might have on your mind. Also, if you are a driver either rideshare or save your car for weekend trips.
7. Online shopping
This can either save you money or make you spend irrationally. Used the right way, online shopping can help compare prices, set alerts or notify you when something goes on sale, and you can get it for a fraction of the original cost. On the downside, the convenience of online shopping can amount to emotional spending and create a major hole in a millennial’s budget. Here, the rule is simple, only get the items you need, at the best price you can find. Don’t buy just because it was there or appeared on a pop-up.
To make sure you never miss a payment automate the minimum amounts for your credit cards and other debts as well as the costs of utilities. Automation helps you save time and keep track of cash flows, making life easier and even raising your FICO. Beware of the highlighted pitfalls.
Finally, saving is a matter of small daily choices like packing lunch or giving up that latte that in time adds up.
9. Brown bags and thermos
Casseroles are not exactly screaming glamorous living, but then again, your bank account is more important than your Instagram account, and now there is even a niche for meal preppers, so you can still be trendy and thrifty. Packing lunch is a healthy alternative to take-out and gives you enough budget to splurge on a weekend or a special occasion. If you want to go all the way, cut down on Starbucks too and get a thermos with freshly home-brewed coffee.
These are not only for moms with three or more kids, but they can also help you save a few dimes that add up to fund a nice weekend getaway or a new wardrobe. Don’t be embarrassed to use them, but make sure you take full advantage especially for bulk shopping that lasts and you need it anyway (detergent, toilet paper).
11. Lifestyle creep
Perfectly described by an article in Huffington Post, this is the mistake most millennials are prone to. Getting a raise should be celebrated with a good bottle of wine, not a more expensive rent or a flat screen TV since on the long run, that could mean less money available.
Not your generation
Generalizations are destructive, and in the case of millennials, everyone should remember not to give into the derogatory talk of people who are not leading the same journey. You have witnessed a major financial meltdown and have survived it and the recovery period afterward.
As long as you stick to basic financial safety rules such as saving every month, keeping a budget, having a more diversified portfolio as you get older and containing risks you should do better than the generations trying to belittle your efforts.