The “Millennials” are growing up. Now aged between 20 and 39, this is no longer a generation of lavish spenders and starving artists. Millennials are saving money and planning for the future. Nothing has brought the need for this into sharper focus than the coronavirus pandemic.
Here are four financial priorities that young adults should be focused on.
Pay off your debts
In the past four years, millennials have begun to amass higher amounts of credit card debt.
Money-saving expert Martin Lewis is very vocal about the fact that paying off debts is the first priority of the financially savvy. Why? It is more expensive to have debt than it is profitable to have savings.
In his article, Lewis gives this helpful example: “Johnny Comelately currently has £5,000 saved up, earning 1% interest, in case of emergency, yet he also has £5,000 on credit cards at 18%. While his savings are earning him £50 a year, his debts cost £900. Overall, he is paying out £850 a year.”
While credit cards have their place in a millennial wallet, they need to be used strategically. Grow your credit score by spending regularly and clearing your balance every month. Keep the credit available to you in case of emergencies so that you never need to worry about the unexpected.
When the debts are taken care of, your emergency fund should be the first order of business. Begin to stack up three-to-six months’ worth of expenses should the worst happen. Use those to pay off any new debts (such as credit card balances or unexpected bills) before the interest builds.
Take budgeting seriously
Famously accused of overspending on avocado toast and lattes, millennials do have a more relaxed attitude towards life’s little luxuries. While treats should certainly remain on the menu, budgeting is an important part of keeping those regular outgoings in check.
Budgeting is not about restricting your happiness for the sake of a few extra pounds in the bank. It’s about understanding the true cost of the things you want to buy. Then, deciding whether the value they bring justifies the bite they take from your available funds.
Start by reviewing all of your current outgoings against your regular monthly income. You might be shocked to see how much those nice-to-have subscriptions are adding up.
Is buying your favourite coffee every day on the way to work eating up 40% of your monthly food budget? You might decide to bring coffee from home some days.
If you don’t want to cut down on those treats, it’s worth shopping around. Chances are you could get the same thing for a better price elsewhere.
By keeping track of what you spend, you’ll think twice about the things that perhaps don’t register as outgoings in your day to day life. Building up that awareness of your spending habits like this is fundamental to strengthening your long-term wealth.
Take control of your pension
Of course, the ultimate goal of taking care of your money is to allow you to retire comfortably at a time that suits you. With that in mind, your pension should be one of your top priorities when it comes to saving.
The golden rule of saving for retirement is to start early, thanks to the awesome power of compound interest.
Working young adults in the UK should already have been enrolled in a workplace pension. This means that you will automatically put 5% of your monthly pay into the pension, and your employer adds 3% of your annual salary on top of this.
While this is a good start, it’s always worth exploring whether you could invest more each month. This will maximise the years ahead and ensure you truly make the most of your money. Shop around to see what options are available to you in terms of private pensions and stocks and shares.
Get comfortable talking about about money
If you’ve been hesitant to really take control of your money, conversations about this topic might feel daunting. It’s much easier to bury your head in the sand than face up to interest rates and worst case scenarios.
If this is the case, start small. Begin by looking at what you have. What is in your workplace pension and other long-term savings accounts you might not have looked at in years? What is your credit score and what small steps could you take to increase it?
The world is changing at an alarming rate, and in 2020 uncertainty really is the only constant. Understanding your finances and your next steps is the best way to ensure that uncertainty doesn’t get the better of you.
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