Millennials have a unique set of challenges that many don’t always relate to. So, I thought we should hear from millennials directly on personal finance. Today’s post is from Lauren Richardson, a recent graduate of the University of Minnesota. As she takes some time to travel before entering the workforce, she hopes to help her peers learn more about their finances so they can be financially prosperous early on in their careers. Take it away Lauren…
Did you know that only 17 states require personal finance education at the high school level?
Sadly, traditional education in high school and college often leaves many Millennials without basic personal finance skills. Fortunately, there are a lot of other resources that you can turn to (including this article and this website!) to get up to speed. Ultimately, having a basic understanding of personal finance is essential for living a sound, successful life.
As 2017 gets started, many of us are setting resolutions for the year ahead. In this article we will explore three actionable tips for Millennials looking to take their finances by the reins this year.
Use SMART Planning to Set Your Financial Goals
Among project managers and other professionals there’s a popular acronym called “SMART” goals. Yes, acronyms are often overused and abused, but this one is actually quite useful. SMART goals refer to goals that are Specific, Measurable, Agreed Upon, Realistic, and Time-limited. Let’s dig into these traits one by one and outline how you can use them for financial planning.
First, be specific. Don’t talk about saving money. Make it a goal to save or invest $300 dollars a month, or to cut spending on food this month by 5%. Using goals like “I’ll eat out less this month” are harder to monitor, enforce, and abide by. Using specific goals like “instead of eating out twice a week, I will eat out only once” are easier to stick to. These goals should also be significant and make an impact on your life. Saving $5 bucks a month won’t make much of a difference. Saving $500 will.
When goal setting you should focus on setting measurable goals. Luckily, personal finance is very quantifiable and can usually be broken down into dollars, proportions, and other numbers.
Make sure you set up milestones, and that you pursue them. Instead of starting the year with the goal to cut your monthly food spending by 25%, perhaps you can start with five months of cutting spending by 5%.
If you (unfortunately) are already trying to reduce credit card debt don’t just say reduce all debt this year. Try and set a monthly goal for how much you want to reduce. This forces you to track it over time and stops you from just pushing it off until the end of the year.
You may also consider setting goals that don’t just deal with reducing debt. You may set a goal to qualify for a personal loan that allows you to consolidate your credit debt by the end of the year. This will require you to build your credit (if it is poor) and learn more about the eligibility requirements, application process, etc.
If you use smaller, more realistic goals, they’ll be far more likely to be Agreed Upon. Often, financial planning involves some input from significant others, or perhaps friends, family, or housemates. For example, your goal might be to cut how much you spend on utilities by 15% this year. This will probably require effort and input from any housemates you might have.
By making goals specific, measurable, and agreed upon, you’ll make them much more realistic. One major mistake people make is making goals un-achievable. They set the bar too high (i.e. cutting all spending by 50% in one month) and when they fail to meet their goals, they throw in the towel.
Finally, make sure your financial goals are time-based and trackable. Setting your goals to be completed on a monthly and/or weekly basis is a great start. Setting deadlines will also keep you honest. “Increasing savings by 10%” is far vaguer than “save 10% in February.”
Efficiently Managing Student Loan Debt
College tuition, as well as living expenses, have skyrocketed over the years. Back in 1981-82, college tuition cost, on average, $2,390 dollars, adjusted for inflation. Now? Average in-state tuition prices are approaching $10,000 dollars, and in many states, costs are approaching or have exceeded $15,000 dollars per year.
Rising tuition has forced more graduates to finance their education. Total student loan debt has exceeded $1.3 trillion dollars, and the average debt burden per student now tops $37,000. Delinquency rates have also jumped up to 11.1%.
There are some steps you can take to make your student loan debt burden easier to manage. First, if you’re in a tight spot, make sure you check with your lenders about more favorable repayment options. Income-based repayment plans (IBR) are now available for most Department of Education loans. These programs ensure that payments are manageable by capping your payment to a proportion of your income.
Still, since student loans accrue interest, you should make it a point to pay them down as quickly as possible. The decision making complex isn’t simple, with personal finance it rarely is. You have to consider certain factors. For example, if you can invest money in a retirement fund that is earning you an average of 15% a year in returns, you’re probably going to be better off doing that rather than rushing to pay down student loans with an interest rate of say 2.8%.
If you have more questions, reach out to your lenders and see what your options are!
Start Planning for Retirement Early
Retirement seems like it’s a long way off, doesn’t it? Why worry about what is going to happen decades from now when you have so many immediate challenges? It’s tempting to fall into this trap, but time passes quicker than you think, and by starting preparation for your retirement now, you can ensure that your “golden years” really are golden.
When it comes to saving, compound interest rates are extremely important. Let’s say you invest $1,000 dollars right now, and then add $200 dollars to your retirement savings each month for 40 years. Think of it as starting your retirement account at 25 and saving until you hit 65. By the time you hit 65 you’d have about $1.1 million dollars in your account!
The tax benefits that you can gain by investing in a 401K or similar retirement account can also save you a lot of money. So make sure you keep that in mind.