Millennials, aged 27 to 42, face unique financial challenges compared to previous generations due to their young age and inexperience. Many have lower credit scores and higher debt levels due to student loans and credit cards. So if your a millennial or a parent of a millennial, keep reading for great tips on how to build towards a strong financial future.
However, with retirement still several decades away, there’s ample time to take control of your financial future and build your net worth. Here are 18 steps millennials can take, we also included some frugal living tips millennials can follow to achieve financial freedom and financial literacy.
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1) Enhance Your Financial Knowledge To Gain Insights on How to Build Towards a Strong Financial Future
Invest in your financial literacy and education by taking courses, hiring a financial coach, or reading about personal finance. Understanding money management is essential for a secure financial future.
Millennials can improve their financial literacy by reading books, following finance blogs, attending workshops or seminars, and seeking advice from financial experts. This will enable them to make informed decisions about budgeting, saving, investing, and managing debt.
Implement this in your financial plan to build towards a strong financial future.
2) Develop a Realistic Budget
A budget helps you save money by ensuring you don’t spend more than you earn. Setting up a budget is one of the most important steps in personal financial management. Regularly review your budget to stay on track and identify areas for improvement.
Creating a budget helps millennials track income and expenses. This involves listing all sources of income, fixed and variable expenses, and setting limits for discretionary spending. Regularly revisiting and adjusting the budget ensures alignment with financial goals and changing circumstances. Sticking to this habit can greatly increase your financial literacy and reduce financial fears.
3) Focus on Credit Score Building to Build Towards a Strong Financial Future
A good credit score is crucial for long-term financial success. Start building credit early by opening a credit card, or store account and taking out a cellphone contract, making small purchases on your credit card, and paying the balance in full each month.By responsibly using credit cards, making timely payments, and maintaining low credit utilization, millennials can build a strong credit history. Reckless spending and not paying your credit card balance on time can negatively impact your credit score. Good credit is essential for obtaining favorable interest rates on loans and mortgages, and it can even impact job prospects and rental, mortgage, or loan applications.
Watch this video by Business Asset: How To Achieve Financial Freedom as a Millennial! – Robert Kiyosaki.
4) Reduce Your Debt
Prioritize paying off high-interest debts like credit card balances. Consider consolidating debts through personal loans with lower interest rates to simplify repayments.
Millennials should prioritize paying off high-interest debt first, such as credit card balances while making minimum payments on lower-interest debt. Debt repayment strategies like the debt avalanche or snowball method can be useful in systematically reducing debt.
By reducing your debt you are taking a critical step to building towards a strong financial future.
5) Avoid Accumulating More Debt
Once you’ve managed your existing debt, avoid making credit card charges you can’t pay off. This prevents you from falling back into a cycle of high-interest debt.
To prevent falling back into debt, millennials should commit to living within their means and avoid using credit cards for unnecessary expenses. Establishing an emergency fund can also help cover unexpected costs without resorting to debt.
6) Explore Side Hustles
Earning extra income through side hustles, especially on a freelance basis, can provide financial security during a job loss or salary reduction. Identify your marketable skills and promote them to potential clients. It’s so easy to outsource any parts of your job or side hustle nowadays, especially the parts you can’t or don’t want to do. Some people even take on two jobs and outsource parts of their work to gain more time and money.
Millennials can boost their income by engaging in side hustles, such as freelance work, tutoring, selling handmade products, or renting out property. This extra income can be used to pay off debt, save, or invest.
Setting up a business now can lead to great opportunities and more money, it can even help with saving for retirement and getting to a point where financial freedom and time freedom are genuine possibilities. Having a business can help you build your net worth over time.
Some examples of side hustles and business ideas that don’t take up much of your time and offer significant returns include:
Dropshipping: An e-commerce business model where you sell products without holding inventory. You purchase items from a supplier only when customers place orders, and the supplier ships the products directly to the customers.
Affiliate marketing: Promote products or services from other companies on your website or social media channels and earn a commission for each sale through your referral links.
Online course creation: Share your knowledge or expertise by creating and selling online courses on platforms like Udemy or Teachable.
Print-on-demand: Design custom products like t-shirts, mugs, or phone cases and sell them through an online store. A print-on-demand service will handle the printing and shipping for you.
Stock photography: Capture high-quality photos and sell them on stock photo websites like Shutterstock or iStockphoto.
Blogging: Create a blog on a niche topic, grow your audience, and monetize it through sponsored content, affiliate marketing, or display ads.
Social media management: Offer your services to small businesses or entrepreneurs who need help managing their social media presence.
Renting out property or managing other people’s property: If you own a property or have extra space, consider renting it out on platforms like Airbnb or VRBO. You can also cohost for other existing hosts and charge management fees.
Peer-to-peer lending: Lend money to individuals or small businesses through platforms like LendingClub or Prosper and earn interest on your investment.
Virtual assistance: Offer administrative services, such as email management or appointment scheduling, to busy professionals remotely.
These side hustles and businesses can provide a significant return on investment while requiring minimal time commitment. However, it’s essential to research and choose a venture that aligns with your skills, interests, and available resources to maximize your chances of success.
Try any of these side hustle ideas to build towards a strong financial future.
Watch this video by Buildapreneur about Real Side Hustles That Make $1,000/Month (NO SKILLS REQUIRED)
7) Spend Mindfully
Opt for less expensive activities and prioritize retirement savings over costly travel plans. Offer homemade meals or DIY gifts instead of expensive store-bought items.
Practicing mindful spending involves making intentional choices about how to allocate funds, prioritizing necessities, and cutting back on non-essential expenses. Comparing prices, using coupons, and taking advantage of sales can also help reduce spending.
8) Open a Savings Account and Contribute Regularly
Start saving consistently, even if it’s just a small amount per week. Establishing good saving habits early can lead to significant long-term benefits.
A dedicated savings account can help millennials consistently save money for emergencies, short-term goals, or long-term financial objectives. Setting up automatic transfers from checking to savings accounts ensures consistent savings.
For some more tips to build towards a strong financial future read this article How to Save Money Fast: The Ultimate Guide to Saving $2,000 a Month.
9) Build an Emergency Fund
Aim to save three to six months’ worth of expenses in an emergency fund to help you stay on track with your financial goals during unexpected events.
An emergency fund provides a financial cushion for unexpected events like job loss, medical expenses, or car repairs. Millennials should aim to save three to six months’ worth of living expenses in a readily accessible account.
10) Start Investing Early
Investing even small amounts can lead to significant returns over time due to compounding interest. Start investing as soon as possible to maximize your potential earnings.
Investing in stocks, crypto, bonds, mutual funds, or real estate can help millennials grow their wealth over time. By starting early, they can take advantage of compounding interest and long-term market growth.
11) Create an “Opportunity Fund”
Once you’ve built an emergency fund and set up automated investment contributions, allocate additional funds to an “opportunity fund” for unmissable investment chances.
An opportunity fund allows millennials to seize promising investment opportunities or fund personal and professional growth. This might include starting a business, pursuing further education, or participating in unique experiences.
12) Maximize 401(k) Contributions
If your employer offers a 401(k) match, contribute at least enough to receive the full match amount. Increase contributions when you receive bonuses or raises to grow your retirement savings.
If their employer offers a 401(k) with matching contributions, millennials should contribute enough to receive the full match. This is essentially “free money” and a powerful way to grow retirement savings.
13) Open a Roth IRA if Applicable
If you expect to be in a higher income bracket during retirement, consider contributing to a Roth IRA. Consult a tax advisor to ensure you’re making the best investment decisions for your situation.
A Roth IRA allows millennials to contribute after-tax dollars and withdraw funds tax-free during retirement. This can be especially beneficial for those who expect to be in a higher tax bracket later in life.
14) Automate Savings and Investment Contributions
Set up automatic contributions to your savings and investment accounts to ensure you consistently meet your financial goals without the risk of forgetting.
Automating contributions to savings and investment accounts ensures consistency and prevents forgetfulness. This “set it and forget it” approach can help millennials effortlessly work towards their financial goals by splitting their paycheck into different categories such as bills, savings and investments, debt repayments, and spending money.
15) Buy a Home Instead of Renting, If Possible
Homeownership can be a smart long-term investment. If you can afford to buy a home, consider renting out extra space to offset costs. This can be especially attractive for first-time home buyers. First-Time Home Buyer Benefits: How to Qualify – NerdWallet
According to NerdWallet Benefits can include low- or no-down-payment loans. They can also include grants or forgivable loans for down payment assistance and closing costs. Those are the fees you pay for the services needed to finalize your loan, often totaling 2% to 5% of the loan amount.
Homeownership builds equity over time and can offer tax benefits. By purchasing a home and possibly renting out extra space, millennials can offset costs and build wealth through real estate.
16) Purchase Disability and Life Insurance at Lower Rates
While you’re young, take advantage of lower insurance rates by purchasing disability and life insurance policies, especially if you have significant student loans or work in high-income careers.
Buying life insurance and disability insurance at the same time
According to PolicyGenius the best way to protect your income is by having both a life insurance and disability insurance policy in place.
Younger individuals typically qualify for lower insurance premiums. Disability and life insurance can provide financial protection in case of income loss due to illness, injury, or death. By purchasing coverage early, millennials can secure peace of mind and protect their and their family’s future financial stability.
17) Find a Financial Accountability Partner
Work with a friend, group, or family member who shares similar financial goals. Regularly check in with each other to celebrate successes and provide support during challenging times. Talking about money and other financial concepts can help you build confidence and self sufficiency. It also helps to discuss financial decisions and their benefits or drawback with others before taking them, especially if you lack confidence and can’t decide on your own what the best course of action is.
Having a friend, group, or family member with similar financial goals can help millennials stay motivated and committed to their objectives.
Working together to improve your financial education is one of the best ways to make it easier and more fun. You can send one another articles (like this one) from blogs, and recommend YouTube videos or other online resources and books. By sharing your challenges and triumphs with a like-minded accountability partner you take the load off yourself.
You can also share subscriptions and other resources like books with each other. This reduces the cost and makes it easier for both of you.
You’ll also feel much better if you often get the chance to help someone else with their financial challenges and problems. Regular check-ins and discussions about progress, challenges, and strategies can provide encouragement and support for everyone involved.
18) Embrace the “Buy Once, Cry Once” Philosophy
While it may seem counterintuitive to spend more on a purchase, investing in high-quality, durable items can save money in the long run. By choosing well-made products with a longer lifespan, you’ll avoid the need for frequent replacements, ultimately spending less over time. This principle applies to appliances, clothing, shoes, tools, and other items. Remember to research and compare products to ensure you’re making a wise investment.
10 Frugal Living Tips for Millennials to Reach Financial Freedom
Achieving financial independence and freedom is a top priority for many millennials, and frugal habits can play a crucial role in reaching that goal. By adopting simple frugal habits, millennials can save money and stretch their dollars further. Here are some additional frugal habits to consider:
Meal prep and cook at home:
Eating out can be expensive, so preparing meals at home can save a significant amount of money. By meal prepping and cooking in bulk, millennials can save even more.
Shop at thrift stores:
Thrift stores and second-hand shops are great places to find affordable clothing, furniture, and household items. This can help millennials save money while still getting the items they need.
Cut back on subscriptions and memberships:
Many people pay for subscriptions and memberships that they don’t need or use. By cutting back on these expenses, millennials can save money and free up their budget for more important things. You can also share subscriptions with family members or friends.
Use public transportation or carpool:
Driving a car can be expensive, between gas, maintenance, and insurance the costs can add up quickly. Using public transportation or carpooling can help millennials save money on these costs.
Participate in free activities:
Many communities offer free activities, like hiking trails, museums on free days, and community events. By taking advantage of these opportunities, millennials can have fun without spending money.
Avoid impulse purchases:
Impulse purchases can quickly add up, leading to overspending and financial stress. By sticking to a shopping list and budget, and avoiding unnecessary purchases, millennials can stay on track with their budget.
DIY home and car maintenance:
Home and car maintenance can be expensive, but many tasks can be done at home with a little research and effort. This can save millennials money on labor costs and help them develop new skills.
Purchase generic or store-brand products:
Many store-brand products are just as good as name-brand products, but they cost less. By purchasing generic or store-brand products, millennials can save money without sacrificing quality.
Use cash-back apps and websites:
Many apps and websites offer cash back on everyday purchases, like groceries and gas. By taking advantage of these offers, millennials can earn money while spending money. Read this article on 11 Tips For Cheap Groceries (How To Save Money On Groceries) to help you with your grocery shopping.
Cable, insurance, and internet bills can be negotiable, and it’s worth taking the time to ensure you’re getting the best deal possible. By negotiating bills and shopping around, millennials can save money on these expenses. There are many websites that offer comprehensive alternative lists for just about anything.
By incorporating these frugal habits into their financial decisions and daily lives, millennials can begin to save money and work towards achieving financial freedom. These habits can complement the actionable steps outlined in the previous section and create a powerful strategy for saving money, taking control of finances, and securing the foundation for a brighter financial future.
Here are some frequently asked questions about millennials and financial literacy
How financially literate are millennials?
Millennials’ financial literacy varies, with some demonstrating strong knowledge of personal finance and financial concepts and others lacking understanding in key areas of financial literacy and decisions. This generation faces unique financial challenges, such as student loan debt and the gig economy, that may impact their financial knowledge and decision-making. Efforts to improve financial literacy, like personal finance education and resources, are crucial for this generation.
Which generation is most financially literate?
It’s challenging to definitively declare one generation as the most financially literate since financial information and literacy levels can fluctuate within and between generations. However, past studies have indicated that Baby Boomers tend to display higher financial information and literacy rates compared to younger generations, possibly due to their life experiences and exposure to various financial situations.
Are only 24% of millennials financially literate?
The “24% of millennials” figure comes from a specific study that may not be representative of the average financial situation for the entire generation. Financial literacy levels among millennials vary greatly, and different studies may yield different results. It’s essential for investors to look at a variety of sources to gain a comprehensive understanding of millennials’ own financial situation and literacy.
Which generation is the least financially literate?
It is difficult to pinpoint a single generation as the least financially literate, as factors like education, experience, and socioeconomic background can influence an individual’s own personal financial management skills and knowledge. However, research often suggests that younger generations, like Gen Zers and millennials, tend to continue to struggle with financial literacy due to their limited experience and unique financial challenges. As each individual has different levels of financial anxiety and financial literacy it’s difficult to make broad statements about the financial literacy of an entire generation.
What percentage of Gen Z is financially literate?
A precise percentage of Gen Z’s financial literacy is difficult to determine, as studies may yield varying results. However, it’s widely acknowledged that Gen Z faces challenges in financial literacy, partly due to their youth and limited exposure to various financial skills and situations. As Gen Z grows older and gains experience in various financial skills, we hope their financial literacy levels may improve.
Are Gen Z financially literate?
Gen Z’s relationship with financial literacy is a work in progress. As the youngest generation of adults (and some still in their teens), they have limited experience with financial matters, for example, which can impact their understanding of personal finance concepts. However, many Gen Z individuals are proactive about learning and managing their finances, utilizing digital resources for financial assistance, and seeking out financial literacy classes and financial education opportunities.
How does Gen Z feel about finances?
Gen Z is generally concerned about their financial future and eager to learn about and manage personal finance. Growing up during the Great Recession, they witnessed the impact of financial instability, and financial fear, which has shaped their attitudes towards money. Many Gen Z individuals prioritize their savings for retirement, debt reduction, and long-term financial planning to secure a stable future. They also utilize their tech skills to learn quickly and often use apps and other online resources to help them manage their finances better than older generations.
What are some financial worries or fears?
Common financial fears include not having enough money saved for emergencies, falling into unmanageable debt, not being able to retire comfortably, losing a job or steady income, and experiencing a financial crisis such as a serious stock market crash or a recession. These fears were exacerbated by the recent Coivid epidemic and the following recession, and rightfully so. These fears can motivate individuals to improve their financial literacy, develop better money management habits, and plans, and seek advice from professionals.
By following these actionable steps, millennials can take control of their financial education and achieve financial freedom and financial literacy. It’s crucial to start early and remain consistent in implementing these strategies. With time, dedication, and the right approach to finances, millennials can overcome the financial fear, anxiety, worry, stress, and challenges they face and make (and keep) enough money to secure a brighter future for themselves and their families.
By following these steps, millennials can take control of their financial future and make financial decisions to work towards financial freedom. Developing good financial habits, spending money well, consistently saving and investing, and being mindful of spending and debt management are essential components of a successful millennial financial literacy journey. With dedication and persistence, millennials can overcome financial hurdles and secure a brighter future for themselves and their families. Paving the way for the next generation of self-sufficient individuals.
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