Millennials, or Generation Y, are people born between 1982 and 2004. They constitute a third of every country’s population and 46% of the current workforce. For many, this generation is an enigma when it comes to many things.
Whether it’s managing relationships, careers, or wealth, they’ve presented the world with new ideas and strategies. This blog describes financial advice for millennial, financial planning, and debt management.
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Who is a Millennial?
Millennials, also known as Generation Y, are the generation between Generation X and Zoomers, or Gen Zs. They were born between 1981 and 1996. The oldest members of this generation are currently in their early forties, while the youngest are in their mid-twenties.
Millennials have grown up with technology; hence, they are masters of the internet. They are the generations spending hours in the cyber café paying most of their pocket money. Hence, they are the digital generation.
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They need to access social media even at work, as that gives them happiness. They are ambitious, entrepreneurial, and looking for a strong purpose at work. They are highly individualistic and materialistic. They aspire to have a work-life balance. Millennial financial planning, which includes wealth building tips, is important just like budgeting for young adults is important.
Understanding the Financial Behaviour of Millennial
Setting financial goals is important for everyone. It includes objectives, analyzing one’s present financial condition, finding a suitable strategy to accomplish one’s goals, and reviewing and changing one’s plan regularly as circumstances change.
Even for millennials, financial planning includes different areas of personal finance and seeks to assist people or families in making educated financial decisions to attain their financial goals and ensure their financial future. Let’s take a look at some financial behaviors of millennials.
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Spending Habits
Millennials are the first generation to use the Internet. They have experienced the convenience of online shopping, online jobs, and many more. With convenience and price in mind, this generation uses online shopping to broaden their options and turns to reviews and testimonials when making a purchase. Despite their debt, millennials have a reputation for being high spenders and a stereotype of being indulgent and reckless with their finances.
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These are some research findings conducted on millennial financial planning behavior.
- Contribute 70% to the total household income.
- Wealth is the top life goal for 80% of millennials.
- 91% of millennials believe in making their financial decisions by themselves without wanting to depend on someone.
- 28% of millennials eat out at least once a month.
- 36% of Indian millennials have a fitness app installed on their phones.
- 56% of millennials invest in Mutual Funds.
- 50% of investors in cryptocurrencies are millennial
- More likely to upskill themselves with vocational and technical courses
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Independent Financial Decisions
91% of the millennials believe in making their own investment decisions. They prefer making intuitive investment decisions. This generation is also open to taking calculated risks of investing in stocks and mutual funds. They also invest in fixed-income products and term insurance. Events like the financial crisis of 2008 diminished their trust in financial planners and experts.
Shorter Career Spans in One Place
Gen Y is defined by job-hopping because flexibility in work hours and a conducive work environment are priorities. They’re also continually investing in skill upgrades. Many of them want to move ahead in their professional lives and look for better opportunities.
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Tech-Savvy and On-the-Go
Mobile apps are a favorite of this on-the-go generation. From social media to fitness, even banking, everything is stored in multiple apps. Millennials are also gadget addicts and want the best or the latest in their collection.
From smartphones to gaming laptops or even Airpods, they want it all since all these are significant purchases, this generation also looks for easier and faster ways to finance their tastes. Credit Cards are a must-have product because transactions take less time. Moreover, this generation knows how to optimize Reward Points and CashBack offers.
Challenges Faced by Millennial in Financial Planning
With increasing economic challenges, the uncertainty surrounding our economy does not appear to be helping this generation plan for their futures. Let’s highlight some key financial problems being faced by today’s Generation Y.
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Lack of Emergency Savings
Most millennials tend to have very little, if any, emergency savings. When an unforeseen financial event occurs, many are likely required to put some of their expenses on credit cards, thus pushing them further into debt.
However, as stressful as these financial crises can be, they can have a positive outcome, as they will often finally spur millennials into saving to avoid a reoccurrence in the future.
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Insurance Problems
For someone in their twenties or thirties, paying for insurance may seem low on the list of priorities when trying to make ends meet. But it is not just our phones and cars that need insuring, and few millennials are thought to have life, medical, or critical illness insurance.
Many millennials won’t have considered that getting insurance is much easier whilst they are young and healthy. Should any medical conditions arise, treatment can be costly, and they may not get insured in later life.
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Retirement Plans
There are times when millennials are found asking themselves ‘where did the time go?’ and millennials are not alone in thinking that retirement is far away in the future when they are young. As insurance companies often advise us, the further in advance you start planning for retirement, the more you improve your chances of achieving the retirement you want.
By not putting money away the day they receive their first paycheck, millennials have become accustomed to netting and spending almost all their monthly income. It may sound simple, but by saving from day one, millennials can get used to living off a lower monthly income at the same time as planning for their future.
Financial Planning for Millennial
When these millennials enter the corporate world, there is constant pressure to achieve, and a bubble of constant praise for effort gets busted. Hence, strong needs for gratification, feedback around effort, and a sense of entitlement come from their early formative years, and the task, even at work, continues.
There is a constant debate over target achievement vs. effort, success vs. effort. They are wired in a certain manner; therefore, their paradigm is different.
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Several organizations are taking multiple initiatives to make their workplace an inclusive institution for millennials. Their programs include reverse mentoring, shadowing, curating career paths, developmental programs, and building and strengthening high-performing teams.
Here are a few financial planning tips for Millennials that are as important as financial literacy for young adults. They are also good investment strategies for teens.
Set a Budget
This doesn’t mean every penny has to be tracked, and your checkbook must be balanced before bedtime (but I wouldn’t object). Setting a budget means knowing how much of each paycheck should go towards bills, savings, and then happy hour and shopping.
The first priority should be taking care of basic human needs: food, shelter, and modern ones like lights, the Internet, and the phone bill. Most graduates also need to budget for debt payments, most likely in the form of student loans.
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The remaining money can then be viewed as excess funds to shop, watch movies, squire a love interest in town, or whatever. When first starting out, excess funds might only amount to a paltry sum each month, so be careful not to spend more than you’ve earned. If you are lucky enough to make big bucks right out of college, setting a budget is important to avoid lifestyle inflation and debt.
Track Your Expenses
As financial pressures continue to mount with each generation, it’s crucial that millennials use principles like budgeting and tracking their income and expenses if they are going to be able to manage the rising cost of living.
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Establish a monthly budget that outlines your income and expenses and endeavor to make sure that your transactions either balance out or tip in surplus of earnings over expenses. List up all your expenses and track them regularly so you can identify areas where you can save more or compromise.
This is healthy budgeting, and it helps you to administer your funds towards your goals while you can also build an emergency fund and establish healthy financial habits.
Seek Professional Advice When Needed
Despite the wealth of resources technology offers for financial planning, the value of professional financial advice cannot be overstated. A financial advisor provides personalized guidance, helping you navigate complex decisions and plan for specific milestones like homeownership or retirement.
Informed decisions, bolstered by professional advice, are invaluable, especially when venturing into investments through platforms like Sharesies or Stake.
Millennial Investment Opportunities
One of the biggest misconceptions from millennials is that they hear they should be investing, and they think that means opening a brokerage account and buying individual stocks. Before we dive in any further, I want to clarify what I mean when I say investing.
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Trading generally refers to buying short-term investments to sell them after a short time for a profit. Traders usually try to time the market, selling before a stock price falls and buying before it rises. For many people, day trading is a full-time job. It takes an incredible amount of research and understanding of the stock market, and most people still need to be successful.
Investing, on the other hand, is a long-term strategy. It involves buying and holding investments over many years to grow wealth. Investing is less about timing the market and more about time in the market.
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Decide How Much You Can Invest
First, you need to figure out how much you can invest from each paycheck, whether you invest $10 or invest $1,000. The percentage of your income that you invest is your savings rate. The higher your savings rate is, the faster you’ll be able to reach early retirement. There’s a direct correlation between your savings rate and the number of years it will take you to retire.
According to millennial spending statistics, the average millennial savings rate is 9.8%. If you can increase that to 20%, you can retire in 25 years or less, Increase it to 50%, and you could retire in 15 years or less.
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Open Tax-Advantaged Investment Accounts
Taxes are one of the biggest drains on investment returns, so you should aim to minimize your taxes as much as possible. For most new investors, the number one goal is to invest as much money as possible into tax-advantaged accounts where it can grow tax-free over a long period.
There are two types of tax-advantaged accounts you need to know about: 401Ks and IRAs (individual retirement accounts). Non-employer retirement accounts, known as IRAs (individual retirement accounts), include the Traditional IRA, Roth IRA, SEP-IRA, and Solo 401(k).
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A Roth IRA is the best retirement plan for young investors, with significant tax advantages over time. There are a lot of great places to open an IRA or a Roth IRA. The two best options are Betterment and Ally Invest because of their high-quality, low-cost investment options.
If you’re investing for a long-term goal other than retirement, you can also open a brokerage account, which allows you to make penalty-free withdrawals at any age. You may also want to open an account to invest in once you max out your retirement accounts.
Stocks, Bonds, Mutual Funds, and Real Estate Options
As a millennial investor, you have a range of investment options to choose from, depending on your risk tolerance and financial goals. Some popular options include:
Stocks: Buying shares of companies makes you a partial owner, and if the company grows, so does your investment.
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Bonds: These are loans to companies or governments, and they pay interest over time.
Mutual Funds/ETFs: These are investment funds that pool money from multiple investors to invest in a diversified portfolio of assets.
Real Estate: Investing in property can offer both rental income and potential appreciation.
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Millennials are the most experienced people. With their vast knowledge of financial planning, they tend to make many helpful decisions. hence, with a little help from how to plan budgeting and saving, they can easily shape their future.