It’s no secret that Millennials are stretching their finances. In a time of high rents and even higher levels of student debt, many young adults are trying to make ends meet with entry-level wages.
Although the causes of young adults’ economic struggles are at least partly structural in nature, Millennials have more control than they realize. To get on the right track, they need a plan to shore up their financial weak spots.
Beyond the Avocado Budget
If you’re a Millennial, your biggest financial problems probably aren’t overbuying avocado toast. Chances are high that they’re:
1. Your credit score
Your credit score has ripple effects across your financial life. If you ever want to buy a home, lease a car, or get a small business loan, you’ll wish you’d paid more attention to that number.
Even if you never need to take on debt, a poor credit history can still hurt you. Your credit history is a key factor in your auto insurance score, which insurers use to determine your premiums when you apply for a policy. And in some states, employers can — and will — check your credit history prior to extending a job offer.
Unfortunately, if you’re like most Millennials, your credit score could use some work. Together with their Gen-Z siblings, Millennials have the lowest average credit score of any generation, at 665. That compares to a national average of 701.
How can you soup up your credit score? Get your credit report for free. Check it for mistakes, and dispute any you find. After that, be a smarter borrower: Don’t take on loans you can’t afford to pay back, even if a lender is willing to offer them.
2. Your debt load
Speaking of taking on loans you can’t afford to pay back, it’s alarmingly easy to ignore your true debt total. Instead of focusing only on monthly payments, think about just how many months — and how much interest — you’ll need to pay it off.
Studies show it’s an issue many Millennials aren’t facing. More than 60% of Millennials with debt say they don’t know when, or if, they’ll ever be debt-free. One in five even expects to die in debt.
Accumulating debt without a plan to pay it off can be scary. But continuing to take on debt with a “too late” mentality isn’t the answer. Instead of taking out loans for discretionary reasons, such as weddings, step back: Is that dream wedding, vacation, or top-notch smartphone worth being saddled with another decade’s worth of monthly payments?
3. Your retirement plans
Saving for retirement is one of the best gifts you can give yourself. Even if retirement seems a long way off — and especially if it feels improbable — it’s important to start saving as early as possible.
Unfortunately, more than a quarter of Millennials are relying on winning the lottery or inheriting money from a relative that they can put toward retirement. Relying on luck isn’t a smart retirement strategy.
The good news is that if you’re still in your 20s (or even your 30s), you can benefit enormously from compound interest. The amount of time your money is in the market is more important than where you put it or even how much you invest.
Equally important to saving for retirement is setting realistic expectations. If you’re currently living on $40,000 per year, will you really be able to cut that to $20,000 in retirement? Remember that inflation may cut the real-world value of that figure in half or even into quarters. Whatever you’re comfortable with, the bottom line is that you’ll almost certainly need to stash more away than you think.
4. Your savings and investments
It’s important to have an emergency savings fund that can cover between three and six months’ worth of living expenses. Anything can happen: What if you lose your job? What if a tornado hits your house?
It’s almost as important, however, to invest some of your savings — something far too few Millennials are doing. Only around 60% of Millennials said they have investment accounts, while more than 80% said they have some savings.
Why aren’t Millennials socking more away? An education gap may be to blame. Although more than 80% are interested in receiving financial advice, just 45% had actually obtained some. Part of the reason is that financial advisors tend to focus on clients with more money available to invest, but there are still online services that Millennials with less capital can take advantage of.
If your financial situation isn’t quite what you want it to be, don’t get discouraged. It’s never too late to start saving, both for emergencies and for retirement. Improving your credit score can save you money now and into the future. Change what you can today, and commit to better habits moving forward.
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It’s no secret that Millennials are stretching their finances. In a time of high rents and even higher levels of student debt, many young adults are trying to make ends meet with entry-level wages.
Although the causes of young adults’ economic struggles are at least partly structural in nature, Millennials have more control than they realize. To get on the right track, they need a plan to shore up their financial weak spots.
Beyond the Avocado Budget
If you’re a Millennial, your biggest financial problems probably aren’t overbuying avocado toast. Chances are high that they’re:
1. Your credit score
Your credit score has ripple effects across your financial life. If you ever want to buy a home, lease a car, or get a small business loan, you’ll wish you’d paid more attention to that number.
Even if you never need to take on debt, a poor credit history can still hurt you. Your credit history is a key factor in your auto insurance score, which insurers use to determine your premiums when you apply for a policy. And in some states, employers can — and will — check your credit history prior to extending a job offer.
Unfortunately, if you’re like most Millennials, your credit score could use some work. Together with their Gen-Z siblings, Millennials have the lowest average credit score of any generation, at 665. That compares to a national average of 701.
How can you soup up your credit score? Get your credit report for free. Check it for mistakes, and dispute any you find. After that, be a smarter borrower: Don’t take on loans you can’t afford to pay back, even if a lender is willing to offer them.
2. Your debt load
Speaking of taking on loans you can’t afford to pay back, it’s alarmingly easy to ignore your true debt total. Instead of focusing only on monthly payments, think about just how many months — and how much interest — you’ll need to pay it off.
Studies show it’s an issue many Millennials aren’t facing. More than 60% of Millennials with debt say they don’t know when, or if, they’ll ever be debt-free. One in five even expects to die in debt.
Accumulating debt without a plan to pay it off can be scary. But continuing to take on debt with a “too late” mentality isn’t the answer. Instead of taking out loans for discretionary reasons, such as weddings, step back: Is that dream wedding, vacation, or top-notch smartphone worth being saddled with another decade’s worth of monthly payments?
3. Your retirement plans
Saving for retirement is one of the best gifts you can give yourself. Even if retirement seems a long way off — and especially if it feels improbable — it’s important to start saving as early as possible.
Unfortunately, more than a quarter of Millennials are relying on winning the lottery or inheriting money from a relative that they can put toward retirement. Relying on luck isn’t a smart retirement strategy.
The good news is that if you’re still in your 20s (or even your 30s), you can benefit enormously from compound interest. The amount of time your money is in the market is more important than where you put it or even how much you invest.
Equally important to saving for retirement is setting realistic expectations. If you’re currently living on $40,000 per year, will you really be able to cut that to $20,000 in retirement? Remember that inflation may cut the real-world value of that figure in half or even into quarters. Whatever you’re comfortable with, the bottom line is that you’ll almost certainly need to stash more away than you think.
4. Your savings and investments
It’s important to have an emergency savings fund that can cover between three and six months’ worth of living expenses. Anything can happen: What if you lose your job? What if a tornado hits your house?
It’s almost as important, however, to invest some of your savings — something far too few Millennials are doing. Only around 60% of Millennials said they have investment accounts, while more than 80% said they have some savings.
Why aren’t Millennials socking more away? An education gap may be to blame. Although more than 80% are interested in receiving financial advice, just 45% had actually obtained some. Part of the reason is that financial advisors tend to focus on clients with more money available to invest, but there are still online services that Millennials with less capital can take advantage of.
If your financial situation isn’t quite what you want it to be, don’t get discouraged. It’s never too late to start saving, both for emergencies and for retirement. Improving your credit score can save you money now and into the future. Change what you can today, and commit to better habits moving forward.