Money Management for Millennials
The millennial generation has endured many financial hardships and economic downturns, thwarting their efforts to build wealth. You may feel like finding your dream job, buying a house or retiring feel further away than it did for your parents. Millennials face the most uncertain economic future of perhaps any generation in America since the Great Depression. Unfortunately for young people whose careers coincided with this trend, it’s difficult to make up lost earnings from early, slow years, the effect of which is compounded when you are less able to save and invest in ways that would provide income in the future. Add to this financial reality, some key trends have emerged in recent generations:
Millennials hold a record amount of debt - primarily stemming from student loans. They also face more stringent restrictions on their ability to take on new debt instruments like mortgages. For example, 20% down payments on home purchases can be prohibitively high for first-time home buyers.
Have a high cost of living - especially those who postponed working in favor of getting higher education or additional degrees or work in the gig economy. City living has become more and more expensive correlated with the availability of high paying jobs.
Are financially dependent on their parents - you may have moved home during the pandemic, but also may be dependent on support from your parents / caregivers
Don’t save for retirement - as company pension plans and Social Security become less reliable retirement income options, it can be confusing to know how to maximize your participation in company sponsored 401(k) plans
Face wage stagnation - though the job market has improved in recent years, due in part to a 20-year trend of decreasing labor market mobility, employees are getting paid less, a phenomenon called ‘monopsony’, since employers have more power when negotiating wages as workers don’t move much around, both from job to job or from region to region.
But these are not problems a little financial planning can’t address. Below are 5 questions you should ask yourself to refine your financial strategy:
What are my future priorities, near and long term? E.g. traveling, buying a house, getting my dream job, starting my own family. How much do I need to save to enable those goals?
How should I budget my income given my spending habits and cost of living?
What is my current debt balance and how can I minimize it to maximize saving and investing?
What is my risk appetite and what are my near term liquidity needs? Am I reflecting that in my saving & investment strategy?
Am I optimizing my tax strategy to enable my goals?
There is no standard set of answers to the above and each individual situation will be unique. That’s where Equus Strategy can help. Reach out to us for a free financial consultation so we can help you understand and formulate your own individual financial strategy for long term wealth creation.