Nine out of ten millennials face significant money challenges, such as high expenses, limited savings, and ballooning debts. These hurdles often obstruct their ability to achieve their financial aspirations, leading to frequent questions including “Where do I start in sorting my finances?” and “How can I play catch up?”
To address these questions, financial specialists offer valuable advice to millennials. First and foremost, certified financial planner Elizabeth Schleifer suggests a balanced approach to student loan payments; neither too low (which can rack up more interest over time) nor too high (risking reliance on credit cards). A medium payment complemented with an automated monthly retirement contribution is recommended.
Ryan Graves, chartered financial analyst and president of Bemiston Asset Management, underlines the importance of considerable savings before purchasing a house. He points out that beyond mortgage repayments, homeowners face continuous costs like taxes, insurance, and repair works. Given the current landscape where the cost of a mortgage overtakes the average rents by 40%, he suggests continuing to rent and saving the extra.
Jay Zigmont, PhD, CFP, and founder of Childfree Trust, believes in eliminating high-interest consumer debt prior to investing. After settling debt, the funds can be redirected to passive investments, transitioning from a 'debt snowball' to a 'wealth snowball'.
According to Schleifer, the key to good budget planning is honesty. Once the funds for necessary expenses like rent, child care, and healthcare are secured, the rest should be divided between 'wants' and income potential, such as raises or better-paying roles.
Lastly, although 25% of American adults choose to live child-free, Zigmont states this should not be a choice made out of financial strain. For those who prefer a child-free lifestyle, the funds meant for child-rearing could be allocated for travel, career switches, or accelerated financial independence.
Schleifer notes that it's common for millennials to start saving late, but regaining balance means saving at an increased rate. For instance, starting around 30 might require saving closer to 18% versus 15% that someone in their 20s would need. Key advice for those making a late start is auto contribution at a slightly uncomfortable rate, and gradually increasing it with each pay rise or completed debt settlement.
Lastly, Schleifer advises millennials to save an emergency fund based on their job stability, support systems, and risk tolerance. Although the conventional opinion suggests a three-to-six-months-of-expenses rule, Schleifer recommends customization. For millennials lacking a fundamental financial cushion, the initial target should be a month's expenses, gradually increasing as finances stabilise.