Whether they realize it or not, millennials’ economic prospects are strongly influenced by the great recession. Many have moved back in with their parents because of the unstable job market and mountainous student debt, a looming burden that many millennials aren’t sure they’ll be able to repay. Given that students get little guidance when applying for loans and student loan debt is unforgivable, student debt threatens to catalyze the next economic crisis, just as housing did in the late 2000s. But what can millennials do to gain stable footing? Herself a millennial, Jackie Vicenteño, Accounting Manager at Spanish Coalition for Housing, offers these tips for managing your finances in order to meet your goals and work toward financial stability:
- Track your spending and make a monthly budget. I made a spreadsheet to track my spending, which helped me see how much income I actually received and where I could save.
- Pay yourself first! Once I had a working budget, I opened a bank account with a different branch as my allowance account. Many people open savings accounts but never save money because it’s so easy to transfer money with the click of a button on your phone or computer. With a separate account at a different bank, you’re more likely to stick to your budget to avoid hefty transfer fees.
- Run your credit report. After setting up my bank accounts, I ran a free credit report online, which showed all my outstanding debt. I was able to see that everything was correct and begin tackling my debts one by one.
- Create a game plan! Once I knew what debts I had, I ranked them by interest rate, so that I could start making bigger payments to the debt with the highest interest. Before I knew it, I made a real dent in my debt and finally paid it off. Sometimes people think paying something off means having more spending money, but when I was done with one, I applied the $100 I was used to spending to the next debt, and then the next.
- Build your credit up! Having more loans than income shot my credit, so I opened a secure credit card with my bank to use my own money to build my credit back up. I used my credit card to pay for gas or groceries, which were already in my budget, and paid the bill right away. The key is to not spend more than you can afford, and to not use more than 30-40% of your available credit. Maxing out a credit card lowers your score instead of helping it!
- Save for a rainy day. Include in your budget how much you will put in your savings. Save something, even if it’s only $25 a paycheck. In today’s job market, it’s likely that you would be out of a job for roughly 3 months, so a good rule of thumb is to save 3-6 months’ worth of income. That way, you will have savings to pay your bills while you’re unemployed.
- Save for your retirement. Social Security may not be around by the time millennials retire, so it’s very important to start putting money in your 401(K) or, if your company doesn’t offer one, open up an IRA. Pay yourself a minimum of 3-4% of your income. If you can pay more, pay more. Many companies match your 401(K); if you don’t contribute, it’s like leaving free money on the table!
With planning and patience, you can take charge of your financial fitness! Make an appointment with an SCH financial literacy counselor today to learn about how budgeting, saving, and maintaining your credit can work for you.