Millennials have a lot of unique challenges when it comes to personal finance. Many went to college, graduated into a recession, and struggled to find decent jobs. 63% of millennials have over $10,000 in student debt and over half feel they’re underemployed.
This generation, which is loosely defined as those born in the 80’s and 90’s , has found themselves in a unique situation where much of the financial literacy advice that’s helpful to other generations doesn’t apply neatly to their own experience. Familiar financial recommendations like buying a house or saving for retirement tend to feel out of reach when your student debt payments eat up a significant portion of your paycheck. And don’t even get us started on the danger of the YOLO mentality when it comes to spending…
We’ve collected five financial recommendations that actually make sense for millennials now. Obviously, the millennial generation isn’t a monolith, and not all of this advice will be applicable to all millennials. But if you are in a position to take some of it, increasing your financial literacy today can pay off for decades to come.
1. Put your tech skills to use with apps for saving more and tracking your spending.
Millennials were one of the first generations to grow up with the internet and often find it second nature to turn to apps or other online tools to solve problems. Luckily, there are a number of programs designed to help people improve their financial literacy.
Mint makes it easy to budget, track your spending, and link all your various financial accounts into one place so there’s less to keep up with. If you hate spreadsheets, but want to get better about managing your expenses, it’s free and easy to get started with.
Apps like Digit and Acorn move bits of money into your savings account for you – little enough that you don’t miss it at the time, but often enough that you start to see it add up. For people not good at taking the active step of saving, it lets you start saving passively, without having to think about it.
Technology can take a lot of the work and stress out of making good financial decisions and making complex processes simpler. Try tools like The Zebra to compare car insurance quotes to find the right coverage and best rate, coupon apps to save at the store, and secure payment apps to make sure you stay on top of your bills and other expenses.
2. Do start saving for retirement (even before you finish paying off those student debts).
It can be hard to think about retirement with thousands in student debt still hanging over your head, but experts confirm that it’s a smart choice to put whatever you can toward retirement the moment you start having some extra income to work with*.
Retirement savings offer tax benefits and compounding interest that means your money will usually make you more in a retirement account than you’ll save by paying off your student debt faster. Really consider what you can afford and commit to setting aside a set amount each month for your retirement account.
3. Split your savings between retirement and an emergency fund.
Even if it seems like there’s little to go around to begin with, make sure some of it goes to your savings account to help cover emergencies like expensive car or health problems. When those emergencies arise, you’re going to have to pay for them one way or another, whether it’s with debt that costs you more in the long term, or with the money in your emergency fund that you socked away over time.
Experts disagree on how much a person should put in their emergency fund. While obviously more is usually better, sometimes staring a huge goal in the face that looks insurmountable makes you less likely to start. So give yourself an initial goal you know you can meet – say $500 over the next few months, then increase it each time you meet your goal until you feel confident that you have enough for most surprise expenses life might throw your way.
4. Understand the different types of debt (and know they’re not all created equal).
Most people have to take on debt; it’s just a part of how our culture works. In many cases, debt can be a good financial decision. If you can handle the monthly payments, the interest level isn’t too high, and whatever you’re investing in can help you make or save money – for example, the car that gets you to work each day – then that’s good debt.
Any debt that you can’t afford is bad debt. If you’ll struggle to make the payments, especially if the interest rate is high, then it’s debt you’re better off without.
Any time you’re faced with a decision that requires taking on debt, carefully consider if the long-term cost is worth it. In some cases it will be, but in many it won’t. Learn to tell the difference.
And always avoid sketchy loan options like payday loans. They’ll cost you much more than they’re worth, every time.
5. Owning property is not always the best financial choice (but sometimes it is).
Buying a home has often been seen as an important financial milestone for people as they grow older. But millennials are buying homes in lower numbers than most of the generations that came before. Even though property ownership is largely regarded as a smart investment, for a lot of millennials, postponing or swearing off homeownership altogether is the best financial choice. It all depends on their particular situation.
A big financial decision like homeownership should only be made after taking a lot of different factors into account – the real estate market where you live, your long-term plans, and what you can afford, in particular. No one should buy a house because it feels like what you’re supposed to do, do your research and weigh all the factors to figure out if it’s right for you.
Financial literacy is one of the most important skill sets that many people overlook in life. Developing a few good habits now can make life better for decades to come. Even if student loans seem to have taken over your life or your job doesn’t pay as much as you’d hoped, you can still take some control over your financial future with the right knowledge and a commitment to doing so.
*Some people genuinely don’t have any wiggle room in their paychecks after covering necessary expenses like rent, debt payments, health expenses, childcare, etc. If that’s you, don’t beat yourself up for not being able to save for retirement yet, but commit to doing so down the line when you can, and try to identify non-necessary expenses you can cut to bring that day closer.