For younger people in the millennial generation, their views towards finances and how they plan to become successful are a bit different than the baby boomers. They also have a few more tools on hand to learn different things about finances and not simply rely on what their parents would do. Yet, even if their ultimate goals are in the right place, they don’t always have an actionable plan in place to reach them. Here are a few ways in which they can start planning for their financial futures.
Prioritizing Financial Goals That Should Be Achieved First
A good starting point for millennials to follow is to make a list of financial goals they want in the near-term as well as long-term goals. Getting to those goals will be another challenge, but at least knowing where they want to be and sticking to the plan serves as a great baseline for everything else.
A few near-term goals would be the following:
- Moving out of their guardian’s house and renting a place of their own
- Paying off student debt completely
- Owning a vehicle without needing to make payments on it
Long-term goals usually are goals like these:
- Buying a house
- Getting a life insurance policy that covers family
- Having money ready for retirement
Knowing Which Kind Of Budgeting To Use
Getting the overall plan together is the first step millennials can take, and the next is to figure out a budgeting system that can help get them there. Budgeting often comes up as a broad term for someone to stay within what take-home pay and any extra income allow them to use it for. But there are several budgeting systems that have been proven to be effective for helping people reach these goals, most commonly:
- The 50/30/20 budget
- The zero-based budget
- The envelope budget
Sometimes, integrating apps within these budgets helps millennial planners make sure they haven’t already exceeded their savings allotments. As a tech-heavy generation, there is a large appeal for mobile applications.
Knowing What Good Investment Strategies Are
Most retirement planning will come in the form of investing whether it’s through a 401k, IRA, or an annuity. Many millennials are eager to make contributions to their 401k, especially if their employer will match a percentage, making for extra savings. However, the disadvantages are that they will not get to choose what the 401k is invested in, and it will be taxed once they’re ready to withdraw.
This is why it may be smart to look at an IRA or annuity account that can be withdrawn tax-free. There are ways to avoid the old broker fees by looking into financial institutions who might offer investment accounts at lower costs, or even what’s known as Robo-advisor services that eliminate many fees. But contributing early to investment accounts can mean millennials don’t have to put as much into them later.