Gaining Financial Freedom Isn’t as Daunting as It May Appear
Problems resulting from day-to-day and long-term money management plague many millennials. With the majority of them facing high debts, it can be difficult to set some money aside for savings. The increasing cost of living in each city and huge student loan debt makes it even harder for them to make ends meet. While they do have jobs, a huge chunk of it goes immediately to paying their student loans.
There are a lot of reasons why people need to have savings. For one, it helps save you in times of unforeseen financial emergencies. You also avoid more debts, and savings give you a better sense of financial freedom.
A 2017 study found that 71% of millennials aged 25 to 34 years old had $0 to $1,000 saved or invested for retirement, with just 11% having more than $10,000. With such statistics, a problem clearly exists when it comes to savings and investments among millennials.
While the whole world views them as spoiled, entitled, and materialistic, in reality, many Millennials feel like they will never achieve major accomplishments, like buying a house, in their lifetimes.
However, that does not necessarily have to hinder their quest for financial freedom. In fact, they can do something to get a better hold of their finances. Experts recommend millennials consider the following to gain financial freedom despite the challenges:
1. Know Your Current Net Worth
The first step in financial literacy is knowing your net worth. Aside from celebrities and prominent businessmen and women, millennials should know their net worth, too. Besides, you can’t start managing your finances unless you actually know where you stand financially. This means checking your savings account, and investments, and calculating the value of the assets you currently own. You should also calculate your credit card balance, student loans, mortgage, and car debts among other things.
Once you have the sum of what you owe and own, subtract the total of your debt from the value of the things you own. Your net worth is the difference you get from that calculation.
Ideally, you should get a positive number. However, if you end up with a negative difference, it raises a red flag. If you find yourself in this situation, you should either pursue a do-it-yourself debt repayment plan or consider speaking to a nonprofit agency like Money Fit while also focusing more on investing.
2. Spend Your Money Wisely
Millennials have heard this quite a lot, and it still holds: spend your money wisely. When it comes to spending, spend on things that you actually value rather than spending it on things other people value. Before buying things, try to ask yourself first if it will benefit you in the long run or not.
Moreover, make it a goal to separate your needs from wants, especially when money is tight. This will help you become a financially responsible person. you will be surprised at how well your financial situation will change when you start spending your money wisely.
It also doesn’t hurt to treat yourself once in a while. After all, you need something to reward yourself with to inspire you to move forward. Take care not to go overboard with your spending. If it helps, create a well-thought-out budget and stick to it. This will help you track your expenses and at the same time, will serve as your guide on where your money should go.
3. Reevaluate Spending
Some people live from paycheck to paycheck, and if you find yourself among this group, you need to start thinking about how you can remedy the situation. Cutting costs can help. Aside from spending your money wisely, you should also consider cutting back in some respects. For instance, you can cut gourmet coffee shop trips to once or twice a week instead of five. You can immediately deposit the money you save into your savings.
4. Prioritize Debts
Student loans have reached $1.5 trillion according to recent estimates and, not surprisingly, millennials own most of that debt. Having a debt – a huge one at that – can frighten just about anyone who just got out of college. With so many bills and no income, some may wonder how they will pay off their growing debts.
However, in case you didn’t know, student loans have the lowest interest rates (about 4.79%) among the debts you will incur. Credit cards, on the other hand, carry high-interest rates (20% APR or more, according to WalletHub). With that, it makes sense to focus your repayment efforts on your credit card bills first. Although it’s never a good thing to incur a growing debt, you will end up somewhere worse if you don’t prioritize high-interest debts.
Additionally, if you have less than $20,000 of debt, you might consider focusing on that amount as soon as possible. Fresh graduates with an income who are living with their parents can easily pay this off, considering that they still have few expenses.
5. Earn More
Naturally, as a millennial, you have goals you plan to achieve, and if you had more financial freedom, you could reach those goals more easily. But that doesn’t mean you should work yourself to the bone, day and night, with no end in sight. You also have to find a balance. If you have a talent that you could put to good use, apply it to get a side job that you can work during your free time.
If you have a 9 to 5 office job, find out how you can climb the ladder in your company. Ask your boss or any authority in your company about promotions and start working on that. Show the bosses what you can do and make them appreciate your hard work. This will add to your qualifications, making it easier for you to get that raise.
6. Take Advantage of Technology
With technology also comes the benefit of automation. From tidying up your finances to expense tracking, a lot of applications now offer millennials an easy way to manage their money. Unlike before when you had to call to check your account balance or, even worse, go to the bank to deposit money, now, you can easily do it from the palm of your hand.
Aside from banking, other apps also let you track unnecessary spending. These applications give you a report on your expenses, break them down, and sometimes, eliminate unnecessary bills. Examples include Mint, Personal Finance, and TrueBill.
You can also use apps that automatically transfer a percentage of your paycheck directly into your savings or investment account, such as Acorns, Chime, Digit, Qapital, and Quoins. With the remaining balance on your paycheck, you will think twice about spending on things you don’t need. With these simple automation strategies, millennials can deposit more into savings and investment accounts than they thought possible on their income.
7. Save up for Retirement as Soon as You Start Your First Job
Don’t make the mistake of waiting until you are older before starting your retirement funds. Even if you still have a lot of time before you reach that stage, you will be better off if you save up now. The earlier you start, you will either have more money at retirement age or you will be able to retire sooner than your friends and fellow millennials.
Most experts recommend investing in stocks. Diversify your stocks to minimize your losses when the market dips. Even with the instability of the market, your age gives you the advantage of being able to purchase stocks when their value is low and wait for them to go up again in a few years. If you do this in your retirement years, you may not have the chance to see your investments bear fruit. Always do your research when making important investment decisions.
Conclusion
Achieving financial stability at a young age is ideal and highly possible. However, millennials often find it challenging. With lower wages and higher debts compared to older generations, most of them think that they still have a long way to go before reaching stability.
Fortunately, even with these challenges, you can achieve financial freedom at an early age. You don’t have to live as cheaply as you can to save more. Sometimes, changing your financial practices can help you gain better control of your finances. Consistency is key. Eventually, you will achieve financial freedom if you stick to your newly developed financial practices.
