If you were born between 1981 to 1996, congratulations, you’re a millennial! If you belong to this generation, you’re likely at a point in your life where you’re starting to care about your personal finances.
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As a millennial, you’re in a position to create wealth in the coming years. So it’s best to learn how to manage your future wealth now.
From budgeting to personal insurance options, these wealth management tips will help you kickstart your financial independence journey.
If you’re an entrepreneur, check out more money and wealth management tips here.
1. Create A Spending Plan and Stick To It
Make a budget. You’ve probably heard this a thousand times, but this advice gets repeated ever so often simply because it works! Creating a budget can help you figure out which expenses are necessary, which ones are discretionary, and where you can cut costs.
When creating a financial plan, pay yourself first. This means automatically routing a specific amount from your paycheck to your savings account. And while it’s okay to save aggressively at some point, make sure to allocate a portion of your income for fun, entertainment, travel, or whatever it is that you enjoy doing. Occasionally, reward yourself. The most effective budget strategy is one that you can sustain for the long term.
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2. Set Short Term and Long Term Goals
Defining your short-term and long-term goals is the starting point to achieving your financial goals. Whether you’re saving for something immediate or farther into the future (purchasing a home, your children’s education, retirement), outlining and carving your financial path from the get-go will provide you with a sense of direction for putting appropriate strategies in place.
If you feel overwhelmed by the process of goal setting, divide your goals (especially those that would take years – even decades – to accomplish) into smaller milestones. This will make them less daunting and is also an effective way to keep yourself inspired and motivated.
3. Build An Emergency Fund
An emergency fund is a bank account that holds money solely intended for emergency expenses.
Before you start saving money for the future or paying off large debts, focus on building an emergency fund first. It’s important that you save for emergencies so you have something to tap into when unexpected expenses come up. It could be an illness, an injury, job loss, a major household repair – basically anything that may put you in a difficult financial situation.
Your emergency fund should at least cover three months of living expenses. If you have a family, you may want to consider saving up to six months of monthly expenses..
Don’t have an emergency fund yet? You can start by allocating 10% of your income towards this purpose. It would be better to put your emergency fund in a high yield savings account where it can earn higher interest compared to a traditional savings account.
4. Develop A Debt Repayment Strategy
Debt is something many people want to avoid but can’t. Whether it’s student loans, credit card debt, healthcare bills, mortgage, or car payments, everybody has some form of debt they need to eliminate to get their finances in order.
Credit cards are the leading source of debt among millennials. That being said, the first step to becoming debt-free is spending within your means and paying your credit card off in full every billing cycle.
If you have several debts to repay, use the Debt Snowball Method (paying off debts from smallest amount to highest) or the Debt Avalanche Method (paying debts in order interest rate — from highest to lowest) to help you manage your financial obligations systematically.
5. Save For Retirement
A study conducted by Bankrate found out that approximately 41% of millennials don’t have retirement savings. They are also less likely to invest in stocks than other adult generations, which could cost them millions of dollars by the time they reach retirement age.
Retirement may be the last thing on your mind right now as you’re enjoying life in your 20s or 30s, but you should start saving for retirement while you’re young. If possible, as soon as you receive your first paycheck.
Do you have 401(k)? Great! Save as much as you can. Invest at least up to the amount matched by your company. Save more if your budget permits. The sooner you begin, the more money you will accumulate by the time you retire thanks to time and compound interest.
6. Invest Your Money
Money kept at home or in savings accounts will gradually lose its value due to inflation. If you already set aside money for emergencies and have enough liquid funds to cover at least six months of expenses, invest the rest. Depending on your risk tolerance, you can invest in stocks, index funds, bonds, real estate, and more.
Investing is a risk, but you can reduce that risk by allocating your assets to different investment avenues. As they say, “you should not keep all your eggs in one basket.”
Begin building your investment portfolio today. Start small and gradually increase your investments once you’ve learned the ropes and settled on an investment strategy that works for you.
7. Have A Secondary Source of Income.
It’s important to diversify your income just like you should diversify your investment portfolio. They say the younger generations are prone to living from paycheck to paycheck. If you think this applies to you, do your best to break free from the stereotype.
It’s great that you have a stable job, but you should not entirely depend on it. Build a business, find lucrative investments, or start a side hustle that can bring you additional income and financial security. Everybody can use some extra cash.
8. Protect Your Wealth With Insurance.
It takes a lot of work to accumulate wealth and make it grow, so it only makes sense to protect it. Life insurance, disability insurance, health insurance, home insurance – all these policies can help you preserve what you’ve worked so hard to achieve.
Whether you’re married or single, with or without a child, purchasing insurance for different kinds of risks will protect you and your family from financial loss when illness, accidents, disruptions, or untimely passing comes.
The idea of dying or getting sick may seem far-fetched when you’re young, healthy, and happy, but unforeseen events and occurrences can befall you anytime. It is always better to come prepared.
About the Author:
Rachael Harper is the Content Marketing Strategist of Bennett & Porter, a wealth management and insurance firm based in Scottsdale, Arizona. When not writing, she makes use of her time reading books and bowling with her family and friends.