Millennials have faced some of the most significant financial challenges throughout the century. Yet, this generation has two fantastic resources on their side: youth and adaptability. Keeping these important qualities in mind, here are five financial planning tips for millennials.
1) Define Your Needs
Saving your money without a purpose is fruitless. So, it’s important to sit down and have an honest discussion about what you’d like to do with your money.
- Buy the home of your dreams
- Open a college fund for your young children
- Achieve an early retirement
- Start your own business
There are no wrong answers. What’s important in this step is that you narrow down what you want to do with your finances so that you can direct all your efforts to achieving these goals.
2) Budget Your Income
No matter how much money you earn or how great of an investor you become, all good financial management starts by ensuring that your expenses do not exceed your income. This is the fundamental law of budgeting. The most effective way to budget is to change your mindset toward it. Don’t look at a budget as restrictive, or something that it keeps you from buying the things you want. Instead, think of your budget as your spending plan, where you get to decide the priority and order of what you’d like to buy with your money.
3) Contribute to Your Retirement Plans
Time is the most important resource any investor has on their side, and millennials have plenty of this to spare. For that reason, one of the best things they can do to build their financial future is to start contributing as much as possible to their retirement plans. Retirement plans are a fantastic way to take advantage of the power of compounding returns. This is when money grows on top of the money you’ve already contributed plus any previous earnings. You could think of it like a snowball that gets bigger as it rolls down a hill. What’s better is that all of this growth will be tax-advantaged.
4) Raise Your Credit Score
Whether you need a loan right now or not, it’s important to continuously work on your credit score (also called your FICO Score). Most people tend to think about credit scores when it comes to mainstream financial products, like credit cards, mortgages, or auto loans. However, credit scores are used for a whole lot more such as:
- Renting an apartment,
- Qualifying for the best insurance rates
- Getting a cell phone plan
Raising your credit score starts with good financial habits. Setting up your credit card to automatically be paid in full every month will help ensure that it’s on time. Not using more than 30 percent of your total available credit and keeping the number of credit inquiries to a minimum are all tips that will make a positive impact.
5) Protect Yourself with Insurance
Finally, no one likes to think about what would happen if they were in an accident. However, tragedies do happen, and for this reason, you need to be prepared – especially if you have loved ones that would need financial support. To protect your family, purchase life insurance. A good life insurance policy should provide a death benefit that is 10 to 12 times your annual income. You can get multiple life insurance quotes today by finding a reputable company online and answering a few short questions.
The Bottom Line
Millennials have the power to take financial planning into their own hands. This starts by defining what they’d like their money to do for them, creating a budget, and then growing their net worth using tax-advantaged retirement plans. Additionally, millennials would be wise to raise their credit scores and protect their families with life insurance.