Having spoken with a few millennials lately, including one young lady who was very motivated to get started on the right financial footing, (this is not always the case with the young people I encounter), I thought I’d devote this blog entry to those just starting out on their lives’ journey.
This is the stuff that I wish somebody had told me when I was just starting out. I figured it out along the way, but it would have been nice to know it all from the beginning. And some people, unfortunately, just never do figure it out for themselves. Would I have listened? Who knows? But, as they say, if I knew then what I know now, and followed the advice I am about to impart to you, I would very easily be a multi-millionaire by now. And you can be too. Anyone can do it.
Often I find myself very frustrated that young adults, who have the most to gain from learning to be smart with their finances, can be the most resistant to hearing (and following) it. And the sad thing is that if they don’t do it now, although they can still do alright whenever they decide to start, they can never make up for that lost time and the money they could have made by investing early. The magic of all those years of compound interest can never be regained.
So, without further ado, in a nutshell, here are my most salient tips for millennials:
#1. The golden rule of finance: Always, Always, Always Live Below Your Means!
Start out that way and get used to it. As your income increases you can increase your lifestyle, but always stay below what you are making. 15% of your income should going into your retirement fund at all times.
#2. The other golden rule of finance: Pay Yourself First!
You will be paying out a lot of your hard earned money to other people and businesses in your lifetime (your landlord, the mortgage bank, electric company, insurance companies, gas company, food producers, goods manufacturers, health care providers, etc., etc., etc.,…..), but don’t give all your money away to other people or you will have nothing to show for it. Always be keeping something for yourself… up front, before any of your money goes out to anyone else.
#3. Make it Automatic
Set up that money to go into your retirement account (401k or Roth IRA) and your other savings (goal) accounts straight out of every paycheck before you even see the money. Out of sight, out of mind.
#4. Keep track of your expenses
Set up a system so that you know exactly how much you are spending, every day, every month, every year, and on what. You can do this by hand (simply writing it down) by computer (i.e. your own spread sheet) or with a website (such as mint.com)
#5 Prioritize your budget: Spend your money on what is most important to YOU
First comes dire needs, housing, food, transportation, etc. Then prioritize the rest according to your income and needs. Wants come last, and only if you can afford them. Think carefully about wants-vs-needs. Do you really want to sabotage your future goals for some frivolous indulgences today?
#6 Plan for your goals
Write them down and save for them systematically (how much do you need to save and when do you want it?). Do you want to get an education? Plan a wedding? Buy a house? Buy a car? Go on a vacation? Always be saving for your future purchases so that you will… (see #7)
#7 Never borrow money! (AKA buy things on credit)
Don’t get into the interest paying trap. It is a slippery slope once you start on the debt quagmire. This includes education (student loans), cars (car loans), and those insidious credit cards. Always save up and pay for things in cash. If you don’t have the money, you can’t afford it. The only possible exception to this is buying a house. But even here, if you can manage to save up and pay cash that would be awesome. People do it. I did it for my second house (after I paid the first off by ten years). Certainly aim to put down as large a down-payment as you can and take out a 15-year mortgage. Then (pre)pay that down as quickly as possible. And don’t buy a more expensive house than you can afford. Though the lending banks will pre-approve you for a much bigger mortgage than you can comfortably afford, don't fall for it.
It’s really as easy as following these 7 very simple rules and you will be set for life. It’s not rocket science. Anyone can do it, at any income level. Stick with this lifestyle and you will go from millennial to millionaire, a very bright future indeed!
Which one are you?
Hopefully in the green!
You can do it!!