Financial Advice For Millennials From A Practicing CPA

Finance

Millennials have so much of free advice heading their way. From how to live a stress free life to how to find the perfect partner and even how to choose the best vacuum cleaner when you are living alone.

But, what most millennials miss out on hearing and learning seems to be the most fundamental advice that they need. How to put their personal finances in order.

Seemingly, the whole world is living to earn, spend and repeat. The sum product of all our activities ends in earning a decent income that can sustain the 3 basic necessities of life – food, home and clothing. Of course, there is also a decent lifestyle spruced with travel, adventure, social activities that needs to be taken care of.

With age, time and health on their side coupled with easy access to credit cards, millennials might be lured into following a lifestyle that is financially unhealthy. They may not realize it in their twenties or even in their thirties. But, the harmful effects never fail to catch up.

Track where your money is going

If you don’t know where the money is going, you will soon be wondering how it vanished so soon. Tracking your expenditure is a surefire way to find out expenses that you can eliminate. You might be paying too many fines, having too many fancy dinners and subscriptions or other trivial expenses which can be capped.

The good news is, you don’t need a MBA in finance to track your own expenses. Mobile apps like Mint, Credit Karma and a host of spreadsheet templates can help you track your expenses on the go. Once you track your expenses, you will know where you are making money, where you are spending it and how you can control it. Once you start controlling your personal finance there will be room to have more for yourself.

Pay yourself first

According to GoBankingRates 2017 survey at least 57% of Americans have less than $1,000 to count on as savings. More than 39% do not have any savings at all. With fixed expenses like rent, mortgage, auto loans, credit card payments, etc. savings often take a lower priority position in the financial agenda of millennials.

While fixed expenses cannot be eliminated, a small change in your financial planning will help build a savings fund in the long run. That is where the pay yourself first comes into play. As soon as you receive your salary or monthly payment, set aside a definite amount out of it to a savings bank account.

You can automate the process of setting aside money using Auto sweep facility where the money in excess of an amount you specify would be transferred to a fixed deposit account. Don’t forget to deactivate the online banking and cards associated with the bank. That way, you will be able to use the account only when you really need it and not for trivial expenses arising out of temptation.

Become a giver/provider

For the millennials generation, living paycheck-to-paycheck has become a habit. A habit that needs to be broken at the earliest. Regular day jobs are great since they provide a stable income. But, they can prove to be a bad idea if becoming financially independent is your goal.

On the other hand, if you are a giver of a service or a maker of a product, you have the chances of generating more revenue than with a regular job. James Dondero,Co-founder and President of Highland Capital Management, who a philanthropist working towards betterment of the society opines, “Be more of a giver/provider. People who consume and do not produce anything will always be dependent.”

It is no surprise that people who run their own businesses are more wealthy than their employees. The idea is to create an alternate source of income. It will help you cruise turbulence times in the economy. Most financial advisors term this as creating a passive income source. Real estate is a great way to create a passive income source.

Plan for the future

When you are 20, 30 or even pushing 40, health might seem to be on your side. But, sooner or later there could be turbulent times when your health might weaken requiring immediate attention. A visit to the hospital is not going to be cheap.

Plan for an emergency fund for healthcare so that when hard times take over you can afford to take care of yourself. Healthcare insurance products can help you cruise through medical bills without overdrawing your bank balance.

Equally important as much as healthcare is 401k investing. If you are a W-2 employee, do look into what your employer is offering. It will help you arrive at a figure that you can take home when it is time for retirement.

Final Thoughts

On the onset the advice might seem overwhelming. How can one build a side business when the full-time job consumes all their life? Truth be told, we are living in an economy called the gig economy. Anybody with the will and the talent can find opportunities that will help them generate income using few extra hours of their life.

If you are a millennial who is just out of college and is laden with education loan, focus on paying it off on priority. Debt can slow down your financial success. Cultivate a habit of setting aside funds on a regular basis as savings. If the financial jargons seem complicated, hire a financial advisor who can help you chart out a personalized financial plan to maximize your wealth and financial independency. Reduce your dependency on a regular by creating alternate sources of income. Above all make sure you are living below your means.

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