Understanding personal finance can be terrifying, particularly when you are just starting on your own. The many strategies and financial management tips available could make you overwhelmed to learn more about managing your money.
Of all the present generations, millennials had it the hardest in terms of managing personal finances. A lot of people would agree that most of the millennials’ financial habits are disconcerting. This is without a reason though. The economic downturn that spanned three years played a critical role in millennial’s financial decisions.
Most millennials came of age or just starting their career when the Great Recession struck the global community. Millennials watched as their parents and even themselves suffered from the economic collapse. Many millennials are too overwhelmed with their current financial obligations to even think of the future.
Millennials are postponing major milestones such as getting married, purchasing a house, and even saving for their retirement fund because they cannot afford it. A recent survey showed that 17 percent of 572 millennials who are childless are further delaying their plans to have children due to economic reasons.
Nonetheless, regardless of what generation you are from and the economic turmoil you are experiencing, preparing enough for the future allows you to face with ease any challenges that might come along. And in doing so, you do not need a lot of money to start. What is important is your determination and effort to get your financial management started.
Learn How to Make a Budget
The bedrock of any ideal financial plan is budgeting. With no budget plan, it is difficult for you to keep track of how much you are earning, splurging, and setting aside.
In creating a budget, you need to sum up all your income from different sources, apportion for every expense, and determine how much you need to save monthly or annually.
Budgeting is a skill that needs time and effort to be mastered. There are plenty of ways in order for you to know how to create a good budget.
You can download apps, such as You Need a Budget (YNAB) and Mint to help you keep track of your finances. You can also go old style using flat mailers, envelopes, and ledgers to help you apportion your money. The latter method is quite effective for those people who learn faster using their tactile senses.
Set Aside Money for Savings
Apart from making a budget plan, you need to understand that in building long-term financial wealth, you need to set aside money for savings. Authorities in financial management highly recommend setting aside at least 25 percent of your earnings for savings.
To curb off the temptation of spending all your money, you may set up an automated bank transfer to a different savings account.
Create an Emergency Fund
You will never know when a crisis such as the COVID-19 pandemic would strike. It resulted in thousands of workers being laid off or their salaries significantly decreased.
Establishing an emergency fund is necessary in order to prepare yourself for any financial surprise, such as those. With an emergency fund at hand, you help yourself avoid resorting to high-interest loans and going into debt.
Experts suggest that your emergency savings should cover six to twelve months’ worth of salary. Have your emergency fund saved in a separate account, preferably high-interest bearing accounts. That way, you are somehow investing while stashing away money as an emergency fund.
Pay off Debts
For most millennials, financial success is about being debt-free, not rich. Accordingly, the majority of millennials believe that debts, specifically student loans, are the major cause of their financial setbacks.
Many millennials are actually eager to pay off most, if not all, of their existing debts. To tackle down their debts, millennials are savvy enough to start paying off debts with higher interest rates and are tax-deductible. Millennials are also looking up options to maximize their monthly payments in order to minimize interest rates.
Learn How to Invest
Millennials also need to comprehend the importance of investing. You do not need to have a lot of cash on hand to start investing. Furthermore, starting your investment early is good for a number of reasons. A small amount of money could grow a lot over time and there is also better risk tolerance in the long run.
There are plenty of investment products in the market that allows you to invest in wide sectors. With such products, you can diversify your investment portfolio and split up your risk over several businesses and industries.
Facing a lot of financial uncertainties can make you lose confidence in working on your financial goal. But whatever it is that the future holds, practicing healthy financial habits can lead to several long-term benefits.