How old are you? Are you somewhere between 20 and 35 years? If so, then you belong to the group of millennials. And, if you’re working, then you belong to the group of working millennials. Now, as a working millennial, you have double responsibilities. Your first financial responsibility is to take care of your aging parents. They have sacrificed a lot for you and taken care of your varied financial needs. Now it’s your time to do the same.
Your second responsibility is to build a good financial house for yourself. And, for that, you have to make the right money moves at the right time. At this stage of your life, each move will have a major impact on your financial house. So you got to be careful. Otherwise, your financial house may crumble down even before it’s constructed.
If you don’t want to live paycheck to paycheck, then here are the 6 money moves you (a working millennial) must take to build a strong financial house for yourself.
- Make a goal-based financial plan: What are your financial goals? What are the financial milestones you want to achieve? Think about them seriously, and then chalk out a financial plan. Consider your income, expenses, benefits, and drawbacks of your goals. Thereafter, you can get an idea of how much you need to save for fulfilling your financial goals.
- Create a well-planned budget: Once you know how much you need to save, you should immediately create a budget. A budget comes handy when your income is low but your financial goal is very high. It helps you to save money for achieving your financial goals.
If you need help, then use a budgeting app to get the right direction. For instance, Mint is a good budgeting app. You can sync it to your bank account and let it track your income and expenses. The app creates a well-planned budget for you, intimates you about the bill payment dates, gives you an idea of your credit score, and suggests tips to improve FICO score. You don’t have to do anything. You can focus on your work, and the budgeting app will do its job.
- Consolidate your unsecured debts: Most millennials experience lifestyle inflation when they start working. Plus, easy access to credit cards makes it too easy to buy what they can’t afford. As a result, millennials are in US$1 trillion debt.
Debts are dangerous. They can break down a financial house within a few months. Working millennials need to take them seriously and pay back their creditors as soon as possible. Otherwise, they would never be able to save money in the long run. They would keep on wasting money on the high-interest rates.
A good way to save on high-interest is to consolidate unsecured debts into an affordable monthly payment plan. If required, millennials can find out what debt consolidation is before they decide to merge your bills into a single monthly plan at a low-interest rate. Once they get all the information on debt consolidation, and there are no more doubts in their minds, they can enroll in a program immediately. The program would help them to get rid of multiple debts as per their convenience.
- Get yourself insured: No one can predict the future, and hence buying an insurance policy is necessary. Accidents can happen in various forms. Insurance policies help you bear the accident-related expenses like a pro.
Buy adequate auto insurance, health insurance, life insurance coverage, and home insurance to safeguard yourself against the accidents, and combat expensive medical costs. According to financial experts, your insurance coverage should be 15 times your annual income. In addition to these insurance policies, buy personal accident, and disability insurance coverage to avoid suffering financially during hard times.
- Build an emergency fund: An emergency fund is a must when you want to be financially fit. It helps you cover unforeseen expenses like a car repair or home renovation. Even when you lose your job or are out of work due to illness, an emergency fund can help you to overcome the loss of income. Try to save at least 6 times your necessary monthly expenses.
A good place to keep your emergency fund is a high-yield savings account. Set aside at least 20% of your monthly income, and keep it in the savings account. When your income increases, make sure you contribute more toward your emergency fund.
Usually, people experience lifestyle inflation with each salary hike. So when your income increases, you should contribute more toward your emergency fund. God forbid, if you lose your job, then you can use it to maintain the new standard of lifestyle.
- Use credit cards wisely: Let’s face the fact. It’s tough to live without a credit card in our country. A credit card helps you to buy things which you need now but don’t have sufficient cash to afford them. A credit card also helps you to build credit, which is extremely important when you want to have a good FICO score. However, there is a catch. A credit card can drop your FICO score if not handled with care. When you cross your credit limit or don’t pay bills on time, your FICO score drops. So always try to maintain an ideal credit utilization ratio, which is 30%. Pay your credit card bills on time so that you can build a positive payment history.
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Smart investments can help you stay financially fit. The compounding interest can give you good returns in the long run, and also help to instill financial discipline in yourself. However, you shouldn’t be too greedy and you must not hurry. Speak to an investment advisor before you making investments. He can help you create a diversified portfolio to minimize risk and get good returns. Discuss your financial goals with him so that he can help you choose the right investment vehicles.