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How Millennials Can Be Financially Successful
In my time as a Financial Advisor, I have worked extensively with millennials. They all have one thing in common, they all want to be financially successful.
If you are in the age group, this blog post will walk you through the steps you need to take.
Factors Effecting Millennials
Millennials were born between 1981 and 1996. Which means today they are somewhere between 25-41 years old.
They are more likely than any generation to be college educated. And are more likely to have a graduate degree. They also have huge student loan debt because of this education.
Many have a family currently or plan to start one in the near future.
They also value experiences over material possessions. And will spend their money on vacations or nights out with friends over buying something at the mall.
Millennials may own a home or may have been renting for their entire life. Over the past few years, homeownership has risen substantially for this group.
Those millennials who have been able to invest while working have generally fared well. Even those affected by the 2008 crash and the COVID pandemic have seen an extraordinary amount of growth in their investments.
So how should this group secure their financial future?
Laying the Foundation
It is not geared to just millennials but many of those same concepts apply.
How Millennials Can Protect Themselves
It is important to take certain measures to protect the progress you have made so far in your finances. Taking these measures will also help you to attain even more success.
When protecting yourself it is important to remember three things.
- Maintain Proper Liquidity
- Payoff Debt
- Have Adequate Coverage
Maintaining proper liquidity means to have anywhere from 3-6 months expenses saved.
This money will not be invested it will likely be held in a savings account.
When emergencies come up this is your number one resource.
After you are done relying on this resource, you need to build it back up to maintain that same support level.
Paying off debt that has an interest rate over 6% is a great way to ensure financial longevity.
It also will lower your monthly expenses, which gives you more flexibility in your monthly budget.
Finally, and what I think is most important is maintaining proper insurance coverage.
Many people think this means life insurance, which is a huge component, but this also goes for disability coverage.
You can read this blog post to learn more about proper life insurance coverage.
Disability insurance is just as important. The average disability claim lasts 7 years.
Most employers will provide you 60% coverage of your income. After taxes that’s likely only 45% of your salary.
Having a supplemental policy to provide yourself more coverage is important. Imagine only making 45% of your current income for the next 7 years – and that’s just the average case.
Determine Your Goals
The next step millennials should take is determining both their short- and long-term goals.
Short term goals are goals you would like to accomplish within the next 2-3 years.
This might be a home or car purchase, having a baby, or going back to school. Anything that may cost you some money in the short term that you need to plan for.
The short-term goals are important because millennials need to bucket their money hit these goals. You have to be inherently less risky with short-term money because you do not want wild swings in the market to hinder your progress.
Then you shift to your longer-term goals. Things like retirement, saving for a kid to go to college, or just trying to hit a savings goal are examples.
The longer out the goal, the most aggressive you can be with your investments for this goal. This is because time is on your side. The more time you have the more benefit the market provides in most cases.
Millennial Risk Tolerance
This is an often-overlooked step for most millennials. Many think because they are young, they should be as aggressive as possible with their investments.
While it is likely true that the more aggressive, they are the more money they should make, it is not always the best option.
This is because it may not lineup with how comfortable they are with risk.
If a millennial cannot stomach a lost similar to what happened in 2008-2009 and during the COVID 19 pandemic, they should not be 100% in stocks.
Monitor Your Progress
This is the last and most often overlooked step but a very important one.
Markets change, life changes, and very rarely does everything happen according to plan.
Accounting for these changes and seeing how they have changed your progress is important.
Addressing issues head on at predetermined intervals will help you from straying too far off course.
This will make sure one bad market, or one unexpected life event won’t throw off all of your progress. You can make a change to your portfolio or savings plan and correct things before they spiral out of control.
Tying It All Together
This is a high-level overview most millennials can take to becoming financially independent.
Following these steps over a long period of time will help you to save more and have more security.
If you would like to dive more into the details, please reach out to me and we can discuss your situation.
The nice thing about being a millennial is that even if you are behind now you have time to catch up. And you have a long runway to start building your wealth.
How do you think millennials should approach meeting their finance goals?