Millennials, who are individuals born between 1982 and 2004, make up the biggest generation in history. This generation is considered the most technologically advanced with smartphones, the internet and social media. As the millennial generation becomes older, members are beginning to enter the workforce and develop personal finance goals.
Having Enough Money for Living Expenses
The most popular goal for the millennial generation is to have enough money for day-to-day living expenses. Millennials leaving college and entering the workforce enter at the bottom of the pay scale. Many have decided to postpone working in favor of getting a higher education due to a lack of job availability. Either way, millennials are initially more concerned about the present than the future.
One reason this is popular is that many millennials struggle to establish a budget. When income barely exceeds expenses, having a budget is vital. Otherwise, spending can become excessive and credit card debt can be incurred. Keeping track of daily spending helps manage expenses and track where every dollar goes. Establishing a budget also helps with other financial goals, such as establishing savings.
Becoming Financially Independent
As millennials get older, many have the goal of becoming financially independent and free from needing financial support from their parents. Financial independence is one of the defining characteristics between an adult and a child. The feeling of financial independence also helps reduce the anxiety and fears associated with money.
To establish financial independence, millennials should start a savings account. Having an ample amount in savings covers any unexpected expenses without incurring debt. Financial planners recommend having at least six months of expenses in a savings account. To start a savings plan, millennials should deposit a certain dollar amount of their paychecks into a high-yield savings account. Another good option is to add to the savings account when an unexpected windfall comes, such as a tax refund. Once at least six months of savings are built up, another goal, such as investing, can begin.
Getting Out of Debt
Millennials who did not have the luxury of a paid college education find themselves in student loan debt. Many millennials who do not have financial discipline incur credit card debt, especially if expenses exceed income. Either way, debt is debilitating and can have harmful, long-term effects if not managed correctly.
Millennials who have debt from multiple sources should consider consolidating for a lower interest rate. Both student loans and credit cards have low-interest consolidation options. To begin paying off debt, a plan must be established. Millennials need to allocate a certain amount of their paycheck to paying off debt. Expenses need to be cut to a minimum because the longer the debt lasts, the more interest is accrued. When dealing with multiple loans or credit cards, the loans with the highest interest rates should be paid off first.
Saving for a Big Purchase
Saving for a big purchase is another important goal of the millennial generation. The big purchase can be buying a home for the first time or going on a long vacation. Whatever the purchase, millennials make this a big part of their current financial goals. During this economic recession, millennials are under stricter guidelines for getting loans, such as a mortgage. Therefore, millennials need to show better financial standing and a reasonable down payment if they want to purchase a home for the first time.
Other than a mortgage, a big purchase should be paid for by savings and not credit cards. Putting a big purchase on a credit card is a poor financial decision and should always be avoided. These purchases are not considered a necessity and should be bought with money that was saved. Credit card interest should always be avoided, and having patience and a good savings plan are all that is needed to help save for a big purchase.
Planning for the Future
The final personal finance goal for millennials is to prepare a plan for the future. As millennials age, their financial goals change. Once the present-day financial situation is well managed, millennials can shift focus to the future, such as retirement. The retirement landscape for baby boomers is very different than it will be for millennials. Social Security and company pensions are no longer reliable retirement income options, with employers leaning on defined contribution plans such as a 401(k).
Millennials who want to save for retirement should take advantage of company 401(k) plans, especially if the employer matches. Contributing helps reduce taxes and saves for retirement in a tax-deferred manner. Millennials in a lower tax bracket should take advantage of a Roth individual retirement account (IRA) or Roth 401(k).