Most millennials are now in their 20s and 30s – and that’s the time most of them make big life decisions like getting married or buying a house. But are the millennials on the right path as far as money management is concerned? With the legions of financial professionals wooing them for business, they can get misled.
But if they play their cards right, they could very well be on the road to becoming millionaires. Let’s take a look at how millennials can manage their finances and set the stage for a comfortable future.
Financial Advice for Young Adults
The first step towards building a strong financial future is to get a handle of your finances right now. Follow these financial tips:
- Check Your Credit Score
- Know Your Debt-to-Income Ratio
- Master Your Budget
- Build an Emergency Fund
- Save Money for Retirement
If you want to grow your assets, get a good deal in loans and credit cards, you need to have a good credit score. Check your credit report once a year from the major credit agencies and address inaccuracy or errors in the report (if any) immediately.
It is very important to keep track of how much money comes in and how much goes out. This is the biggest building block for good financial health. The money that comes in is the income you bring into the household, like your salary, cash vouchers, bonus, rental income, investment returns, etc. The money that goes out is the money you pay for your expenses and debts. Once you know your debt-to-income ratio, you can take the next step towards wealth creation.
Every millennial household needs to have a budget. A budget can help you reach your financial goals.
To build a budget, first, you need to estimate your monthly income and expenses. Take a look at where you are spending your money. Divide your expenses as fixed expenses and discretionary expenses. Your loans, electricity bills, insurance, etc. are fixed expenses; they ideally remain the same every month. You cannot cut down on these expenses.
But in discretionary expenses, there is scope. Gym memberships, dining out, travelling, buying a car, etc. are all discretionary expenses. These are the expenses you can cut down from your budget to free up some money to make more critical purchases like buying a house or paying down your debt.
Nobody knows when an emergency can strike. It could be a job loss, an illness, or home repairs. Such emergencies can throw a spanner in your financial plan. That’s where an emergency fund can help. You need to have at least 6 months of living expenses as an emergency fund to help you survive a temporary financial hardship.
Work towards building your emergency fund. Reroute at least 10% of your monthly income into a high-yield savings account, which you can easily access in emergencies. You may have to cut down your expenses or earn extra income to fund your emergency account.
It’s a universal truth – the sooner you begin saving, the more wealthy you’ll be at retirement. That’s the power of compound interest. When you make regular investments for your retirement, your money grows uninterrupted, thus helping you retire rich.
Tip: Hike your retirement savings as you financially progress in your career.
The Takeaway on Financial Planning for Young Adults
The best financial planning advice for young adults would be to get on the right road towards financial security early. The financial tips listed above promises to make life comfortable for you and your loved ones – now and later.