Managing money is tough for many millennials today. It comes with even more rising cost of living, college loans and uncertain jobs which can feel overwhelmed. However, taking timely control over expense can leads to more thrifty financial living in the long run. Here are a few simple budgeting tips, investment strategies, and practical tips that will help secure your financial future.
What is Financial Wellness?
Financial wellness is not just about having a savings account it includes the planning for the future and preparing for the unexpected circumstance. According to a Bankrate survey, 28% of millennials have no emergency savings. This underlines why more importance has been attached to the financial planning. Financial wellness means making an effort in budgeting and investing.
Budgeting: Your First Step to Financial Wellness
The first step to financial wellness is creating a balanced budget. A well balanced budget helps you to control and track your income and expenses. One easy method to follow is the very simple and well known 50/30/20 rule:
- 50% of your income for essentials (rent, food, and bills etc).
- 30% of the income can be for entertainment and other non-essentials.
- 20% should go towards savings and paying off debt.
By following this rule you can save consistently while still covering your needs and allowing for a little fun.
Track Your Spending
Millennials are tech-savvy, so make the most of budgeting apps available to track your spending. These apps help you monitor where your money is going. NerdWallet reports that users of budgeting apps save 10-15% more than those who do not track their expenses.
Build an Emergency Fund
Experts recommend building an emergency fund that can bear the three to six months of your living expenses. These funds will be crucial during the financial emergencies like job loss or medical bills. In 2020 the Federal Reserve found that 40% of Americans could not handle a $400 emergency. Even saving $50 a month can help build a solid safety net over the time.
Tackling Debt: A Must for Millennials
Student loans and credit card debt weigh heavily on millennials. According to Experian the average millennial carries $34,504 in student loan debt. Reducing debt is key to financial wellness. One prominent strategy is the Debt Avalanche Method (DAM), where you can prioritize your focus on paying off high-interest debts first to save on interest.
Another method is the Debt Snowball (DSB), which targets smaller debts first. This gives quick wins and motivation to tackle larger debts.
Investing: Securing Your Financial Future
While budgeting handles current expenses, similarly, investing helps build long-term wealth. Starting early allows millennials to take advantage of time value of money. Even small investments can grow significantly over time.
Diversify Your Investments
A diversified portfolio reduces risk. There is a simple rule that do not put all your money into one type of investment. It is advised to spread it across different areas like stocks, bonds and real estate. For example, investing in exchange-traded funds (ETFs) allows you to pool money into various assets. An S&P 500 ETF can offer an average annual return of 7-10% over time.
Automate Your Investments
There are certain apps available to make it easy to start investing without large amounts of money. For instance few apps rounds up your spending amounts to the nearest dollar for payments and invests the extra change. Over time, these small investments can grow into something significant through the power of compounding.
Financial Wellness is a Long-Term Commitment
Remember that achieving financial wellness is not something that happens overnight. It requires consistent effort in budgeting, saving and investing. By following a structured plan and goals the millennials can overcome economic uncertainty and build a secure financial future.
