Budgeting for millennials: A map to financial security.

Millennials are a dynamic force of 75 million people. They make up nearly 25% of the total U.S. population, 30% of the voting-age population, and almost 40% of the working-age population. They are educated, diverse, and happen to have entered the workforce during an economy affected by the Great Recession and the student-debt crisis.

Millennials face some unique, but surmountable, financial challenges.

Forty-five percent of millennials have a bachelor’s degree or higher, but on average, they borrowed $30,000 to pay for college. They make approximately $4,000 less annually than the same age group did in 2000 and have a net worth of negative $3,472. Millennials, like all generations, can benefit from a budget to manage their finances and reach their goals.

So Millennials, we put this guide together for you. The ideas below can be good places to start as you map your financial future.

Budget your way to financial freedom.

A budget puts you in charge of your money, makes money decisions simpler, helps you get out of debt, and lowers your stress level.

Figure out what your current financial situation looks like.

1. Get real about your income.

How much do you really make after taxes, insurance, etc.? Add any tips, child support, or gig money. If your income varies from month to month, look at a six-month average.

2. Get real about your spending.

Log every penny you spend. Thirty-four percent of millennials have at least one budgeting app on their phone. Some of these apps might be great tools for you, too:

• Mint: manages spending, credit cards, and loans.
• Personal Capital: handles budgeting, net-worth tracking, and financial advising.
• Goodbudget: helps couples manage a budget together.
• Expensify and Zoho Expense: scans receipts for recording and sorting.

Examine your bank statement to record all the auto drafts — bills, subscriptions, money transfers. Record it and update it over several weeks. Group your spending into “Recurring” and “Variable” or “Needs” and “Wants.” Then, put every expense into the proper category using your budgeting app or spreadsheet.

It can be hard to plan where you’re going before you have a clear picture of where you are. Once you have a clear picture of your current financial situation, you can start to make plans.

Build a budget around your goals

Now it’s decision time: What are your goals? Do you want to buy a house? Renovate? Start a business? Your budget will reflect your goals, timeline, and the amount you need to save. To start your thinking, here are some of the goals shared by many millennials: 

 Do your current spending habits fit in with the goals you have set for yourself?

Is the way that you are currently allocating your funds supporting or hindering your goals? Are there certain spending habits that aren’t necessities that would help you reach your goals sooner? Now is the time to evaluate which spending habits contribute to the financial future you are building for yourself and which ones may be holding you back.

Now is also a good time to think about your credit score.  Are you managing your current debt in a way that is protecting or enhancing your credit score?  What do you need to do now to make sure your credit score is at a rate that will help you with your goals?

You can check your credit score for free through the Federal Trade Commission’s website.  If you want to learn more about how to protect your credit score, we have another article about that here (include a link to credit score blog).

Speaking of goals, what are your goals? We’ve listed some goals to consider below, but you may have others on your list.

Pay off education debt. In 2020, 44.7-million Americans owed $1.56 trillion in student loan debt with average monthly payments of $393. Besides the monthly payment, student loans present particular concerns related to future endeavors.  If your student loans have been funded through the federal government, they are not automatically discharged if you file bankruptcy (https://studentaid.gov/manage-loans/forgiveness-cancellation) Additionally, if you would be relying on student aid to return to school for a graduate or professional degree, your eligibility will be dependent on your current loans being in good standing if you need to take out additional loans to attend.

Save for retirement. The traditional pension is vanishing, and while 66% of millennials work for an employer that offers a retirement plan, only 34.3% participate. Sadly, 66.2% of working millennials have nothing saved for retirement, leaving Social Security as their only guaranteed source of retirement income. If you work for a company that offers a retirement savings plan, now is a good time to find out what they are offering. Important things to consider are whether or not there is a company match policy, how much you need to contribute for the match policy to be active, and what the waiting time is before you’re 401(k) is fully vested.

Create an emergency fund. Cars break down, refrigerators die, and people lose their jobs. Experts recommend an emergency fund with three to six months’ living expenses in some form of savings account.

Now that we have some goals in mind, here are some strategies for funding these different goals:

Housing: Do you currently live alone? Could you save money by getting a roommate? One study during the COVID-19 pandemic shows 52% of millennials live with relatives or roommates. According to SmartAsset, this can save more than $1,000 monthly in large cities.

Food: Millennials tend to spend more on dining out and delivery. Eating at home can be less expensive, and healthier. Check out a few of these tips for creating a well-stocked pantry while saving money.

Entertainment: Do you use have any subscriptions that you don’t use as often as you thought you would when you signed up? Keep what you use the most, and unsubscribe from anything that you’re not using.

Transportation: Could you choose public transportation, biking, or ridesharing?

Cell phone/internet: Shop around. Are you using all of the features of the plan that you have?

Credit cards: Check out these great tips for credit card savings.

Apps: Some apps help you save. But be very cautious of apps that make spending money so very, very easy.

Budgets are a process.

Now that you’ve identified your current financial situation, your goals, and a few ways you can achieve your goals by adjusting your spending habits, make a transition plan that lets you make gradual changes, and adjust your plan as needed. Don’t give up.

Don’t hesitate to seek financial advice from human financial advisors or robo advisors to help manage your personal finance. You can find financial planning information by talking to workplace retirement plan providers, online brokerage firms, and experts at your bank.

Technology can also be helpful when thinking about how to manage money. These apps provide users with helpful ways to manage their money:

• Apps to analyze cash flow, spending, and save automatically: Cleo, Olivia, Digit, and Qapital.
• Apps with investment options: Betterment, Wealthfront, Acorns, Stash, Robinhood, and M1 Finance.

Bottom line: You win!

When you create a budget that helps you meet your financial obligations, save for your goals, and get rid of stress, that’s a win-win-win. We hope this guide will help you build a financial future for yourself that you are proud of and that reflects your goals.

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