Financial Fundamentals for Millennials

With age comes responsibility. If you’re a young adult in your 20s or 30s, you’re likely facing the realities of adulthood. While the opportunities life offers are exciting, emerging financial responsibilities are also a significant part of the picture. Millennials (young adults born between 1981 and 1997) face unique challenges such as a competitive job market and significant student loan debt, which can make financial stability difficult to achieve.

Poor money management can lead to debt, stress, and reliance on others. Fortunately, good money management skills can help you achieve personal goals and build financial security. Learning the basics of financial planning now will pay off in the future.

Identify Your Financial Goals

Setting goals is an important part of life, especially for your finances. Your goals will change over time, requiring adjustments. Start by asking yourself these questions:

– What are my short-term goals (e.g., new car, vacation)?

– What are my intermediate-term goals (e.g., buying a home)?

– What are my long-term goals (e.g., saving for your child’s college education, retirement)?

– How important is each goal to me?

– How much do I need to save for each goal?

Once you have a clear picture of your goals, you can establish a budget to help you achieve them.

Create a Budget

A budget helps you manage your finances. Here are the steps to establish a budget:

1. Identify your current monthly income and expenses. Add up all your income sources and expenses, including discretionary expenses (e.g., entertainment, travel, hobbies) and fixed expenses (e.g., housing, food, utilities, transportation).

2. Compare the totals. Are you spending more than you earn? If so, make adjustments to get back on track. Look at your discretionary expenses and identify where you can cut back. It may take time and discipline, but you’ll develop healthy financial habits along the way.

3. If you have extra money, put it towards savings. Pay yourself first by adding to your retirement account or emergency fund. Using extra income to build savings helps you achieve your financial goals in the long term.

Establish an Emergency Fund

A financial crisis can strike unexpectedly, so it’s important to be prepared. Set up a cash reserve to cover unexpected expenses. Otherwise, you might need to use money set aside for other purposes or go into debt.

You may have heard you should have three to six months’ worth of living expenses in your cash reserve. The exact amount depends on your circumstances, such as job security, health, income, and debts. A good way to build an emergency fund is to save a percentage of your paycheck each pay period. Once you reach your goal, keep adding money—the more you save, the better.

Review your cash reserve annually or when your financial situation changes. Major milestones like a new baby or homeownership will likely require adjustments.

Use Credit Cards Wisely

Credit cards can help you track your spending but can also lead to overspending. Before accepting a credit card offer, evaluate it carefully by:

– Reading the terms and conditions closely.

– Knowing the interest rate and how it’s calculated.

– Understanding hidden fees like late-payment charges and over-limit fees.

– Looking for rewards and incentive programs that benefit you.

Contact the credit card issuer if you have questions about the offer’s language. Compare multiple credit card offers to find the best fit.

Remember, your credit card use affects your credit score. Avoid overspending by setting a balance you can pay off fully each month. This way, you can build credit while being financially responsible. Missed payments can harm your credit score, making it harder and more expensive to borrow money later.

Manage Your Existing Debt

You might be dealing with student loan debt and wondering how to pay it off. Fortunately, there are many repayment plans to help manage student loans. Check if you qualify for income-sensitive repayment options or Income-Based Repayment. If not, you might be able to refinance or consolidate your loans to make repayment easier. Explore all your options to find what works best for you.

Be Cautious with New Borrowing

Even if you’re managing existing debt, you might need to borrow more (for example, for graduate school or a car). Think carefully before borrowing. Ask yourself:

– Is this purchase necessary?

– Have I comparison-shopped to get the best deal?

– How much will this loan or credit cost over time?

– Can I afford another monthly payment?

– Will the interest rate change if I miss a payment?

– Are my finances in good shape, or should I wait to borrow until I’ve paid off existing debt?

Weigh your existing debt against your need to borrow more and decide if it’s a wise decision at this point in your life.

Take Advantage of Technology**

Millennials have access to technology that previous generations didn’t have. Many apps and programs can help with financial management. Find ones that are most helpful to you. Do you need alerts to remind you to pay bills on time? Help organizing your finances? A program that lets you view your bank, credit card, investment, and loan accounts all at once?

Researching different programs can also help with number crunching. Many financial apps have built-in calculators for tasks like breaking down a monthly budget or figuring out a loan repayment plan. Experiment with what you find, and you’ll likely develop skills and insight for future planning.

Although apps are a good start, consider working with a financial professional for personalized advice.

Secure Your Financial Future with Personalized Guidance

The financial landscape is constantly changing, and the challenges facing millennials are unique. From high education costs and stagnant wages to new investment opportunities and evolving financial technology, navigating your finances alone can be difficult. A seasoned financial advisor can provide the guidance and accountability you need to make smart money moves today that set you up for long-term success.

At Bogart Wealth Management, our advisors specialize in creating customized financial plans for young professionals. We help you manage debt, build an investment portfolio, maximize retirement savings, and more. Don’t risk your financial future by going it alone. Schedule a consultation with a Bogart Wealth advisor to discuss your situation and start working toward financial freedom.

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