Millennials Made Great Strides Financially. Why Don’t They Feel it Yet?

As Meghan Drew of Investopedia recently wrote, “Millennials have been fighting an uphill battle most of their working lives.” It’s true. If you’re a Millennial, the 2008 economic recession certainly had an early impact, whether your career was just getting off the ground at that time or you were a pre-teen whose parents struggled financially. 

But despite a slow start, people born between 1981 and 1996 are now on better financial footing than previous generations were at that age. According to the Federal Reserve, Millennials are now worth about $15.95 trillion, up from $3.94 trillion five years earlier.

Why don’t you feel comfortable yet? Perhaps because the important hurdles you’ve leapt over so far don’t result in extra cash flow right now:

• Investing in your education: You have the earning power, but you may still be paying down loans.
• Saving for or buying a home: Your cash is devoted to acquiring an equity-building asset.
• Investing in your employer’s retirement plan, with special attention to any matching “free” money: Yet another smart choice, but you won’t feel it in the form of cash flow. 

So what can you do to complement your efforts, both “on paper” and in your wallet? 

1. How’s your emergency fund? Make sure you have 3-6 months times your monthly expenses on hand in savings. This gives you a stable base from which to invest, knowing that you’d have a cushion if the unexpected occurs. It also prevents you from reaching for that credit card, with rates that average 22 percent or more.
   
   
2. Get clear on your priorities. What are you after? Own a business, fund college for your kids, maximize investments? What is mission critical and what’s unimportant or doesn’t serve those priorities? With your priorities in mind, you can begin to narrow your focus and shave away expenses that don’t serve your priorities.
   
   
3. Pay yourself first. Some call this “reverse budgeting.” When you pay your savings account first, right along with the other bills and obligations, you increase the odds that your savings will grow. That’s because you’re not just saving what’s left over. You’re spending what’s left over. Start with 10 percent and work your way up to 15 and then 20. Some use the 50/30/20 approach: 50% of income is spent on needs, 30% on wants, and 20% on savings.
   
   
4. Budget according to what is, not what should be. The most important part of budgeting is tracking where your money is going and creating a budget based on that. Unrealistic budgets based on a vision of “ideals” often lead to disappointment. Use a smartphone app to show you income vs. expenses for the three prior months and build a plan to make realistic cuts that serve your priorities.
   
   
5. Create a financial plan. Once you’ve established emergency savings and taken advantage of all matching employer contributions, financial advisors recommend working toward tackling your financial goals and priorities based on your budget. One additional vehicle to add to your plan may be a Roth IRA, which allows your post-tax contributions to grow tax free and has more flexible withdrawal rules. You can withdraw your Roth IRA contributions at any time, for any reason, without owing tax. And you can withdraw the earnings, too, subject to limits, for a first-time home purchase, higher education or adoption fees. Consult with a fee-only fiduciary financial planner to craft a plan to learn more and to help you craft a plan that serves the priorities you’ve set for yourself. 

Amy Cho is a trust and wealth advisor based in Nashville. She can be reached at amy.cho@pnfp.com or 615-744-5138, with teammates located across the firm’s footprint.

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