5 Financial Goals for Millennials
Posted By Terri Williams on December 8, 2016 at 6:57 pm
Financial goals often vary by life stage, and the monetary objectives of millennials may be influenced by a variety of factors. For example, a recent survey reveals that some millennials won’t refinance their student loans to get a lower interest rate for fear of losing the income-based repayment option. Other research reveals that many millennials delay major decisions such as purchasing homes and getting married.
For college students who graduated to an economy still recovering from the recession, stagnant wages and limited job opportunities (depending on college major), the American Dream has been delayed indefinitely.
So what are – or should be – some of the most important financial goals for millennials? GoodCall spoke with several financial planners and advisers to obtain the following advice:
Financial goals: First, set a budget
It turns out that budgeting is smart advice at any stage of life. Melinda Kibler, certified financial planner and portfolio manager with Palisades Hudson Financial Group in Fort Lauderdale, FL, and a millennial herself, tells GoodCall that budgeting is a foundational block for achieving financial stability, and she says it doesn’t have to be a complicated process.
“Gather your last few credit card and bank statements, add up your monthly income after tax, and subtract your monthly outflows,” Kibler says. “If you don’t have a surplus of cash at the end of the month, you are spending too much, and it is time to cut back.”
Without knowing how much you’re spending or where you should be allocating funds, it’s impossible to set and achieve your goals.
Save money for a rainy day – or at least another day
A recent survey reveals that almost one-third of millennials don’t have any money in savings. Nothing. Nada. Zilch. Zero. While some young adults may think they don’t earn enough money to contribute to a savings account, others may believe that they are invincible – or perhaps they’re just not thinking about the probability of a negative event. And then, there are the millennials who believe that their parents will be their back-up plan.
But it’s called an “emergency” fund for a reason. In the event of a disaster or an urgent financial situation, Millennials need a plan that doesn’t include their parents. In fact, one report found that 47% of parents are stressed out trying to help their adult children financially.
Nicholas J. De Jong, MAS, CPA, CFP, financial adviser at Savant Capital Management in Naperville, IL, tells GoodCall, “I strongly encourage millennial clients and peers to establish an emergency fund using an online savings account that will pay 1% interest or better.” How much money should be in the fund? De Jong recommends enough money to cover three to six months of living expenses.
But when millennials reach six months, it doesn’t mean they can stop saving. Especially since they are generation most likely to job-hop or be contract, part-time, or freelance workers.
Josh Alpert, owner of Alpert Retirement Advising in Southfield, MI, tells GoodCall that millennials should really save enough money to last a year without having a job. “Having at least a year’s worth of savings allows you to be more selective when it comes to finding your next job in your career path,” Albert explains. “Those with little savings may be forced to accept a job that may not be the most ideal because they cannot survive any longer without a paycheck, and the impact of this can severely stunt a career path.”
Tackle that debt
Most millennials have some form of debt, and many have credit cards and massive student loans. Kibler recommends sorting the debt by interest rate, and then paying down the debt with the highest interest rate first. “Credit card debt in particular is difficult to dig out of, and creates a vicious cycle, so you will likely want to knock this out before moving to your student debt,” Kibler advises.
According to the 2016 Student Loan Hero Refinancing Survey, the majority of millennials surveyed had not refinanced their student loans because they were not aware of refinancing. Borrowers can get some help when they refinance student loans – it won’t make the debt go away, but it can make it easier to handle with lower monthly payments, whether from lowering interest rates, lengthening the repayment term, or both. Extending the term – even when lowering the interest rate – can significantly increase the overall amount you’ll repay despite significantly decreasing your monthly payment. Translation: You’ll pay less per month, but because you’re making payments for a longer time, your overall payment could be greater than if you’d stuck with the original loans.
Start saving for retirement
Millennials are a long way from retirement, but De Jong says it’s never too young to start saving for this life event. “The power of compounding interest makes a strong case for starting sooner than later, and millennials should take full advantage of employer matching contributions and profit sharing contributions offered through their employers’ retirement plans.”
De Jong explains, “The early years of a career are often a prime time to contribute to a Roth IRA or Roth 401(k) because millennials are typically in a lower tax bracket, so making Roth contributions early provides a long time horizon over which the tax-free growth can occur.”
Investing is one of the best ways for millennials to meet their financial goals. “For smaller portfolios, I recommend diversifying by purchasing funds with exposure to U.S. large-cap stocks, U.S. small-cap stocks, and international stocks,” Kibler says.
In case you’re scratching your head, she explains, “For example, if you had $10,000 in your retirement account, you may want to purchase $4,000 of a U.S. large-cap fund (such as SPDR S&P 500, Ticker: SPY), $2,500 of a U.S. small-cap fund (such as iShares Core S&P Small-Cap ETF, Ticker: IJR), and $3,500 of an international fund (such as American Funds EuroPacific Growth, Ticker: AEGFX).”
By diversifying, Kibler says millennials can reduce risk. “However, you are providing exposure to a variety of markets and increasing your opportunity for long-term growth.”
Additional tips to reach financial goals
Learning how to save money may be a difficult step for many millennials, and Jared Bryson, owner of The Bryson Group in McKinney, TX, recommends starting with a comfortable amount and then steadily increasing it. “Set the amount to a percentage of your earnings – doing so will allow you to automatically increase the set amount with each raise you receive,” Bryson explains.
“Compound interest and growth is your friend, and it’s imperative to begin early in your life to receive its full benefit,” Bryson says. If millennials don’t learn to start saving early, he says it will be difficult – although not impossible – to catch up later.
For millennials to reach their financial goals, De Jong says they will have to exercise discipline. “Live within, or even under, your means. Set a budget and stick to it,” De Jong advises.