Financial Advisors Advice for Millennials – However, despite these challenges, many millennials have shown remarkable resilience when it comes to managing their finances. Financial advisors often praise this generation for their savvy financial habits, with technology playing a key role in helping them navigate their way to a more secure future. While millennials have made significant strides in their financial journeys, expert advice can still be invaluable in helping them balance competing priorities and make the most of their money.
Financial Advisors Advice for Millennials
What Millennials Are Doing Right
Contrary to popular stereotypes, millennials aren’t squandering their money on luxuries like avocado toast and overpriced coffees. In reality, they earn 20% less than baby boomers did at the same age, leaving them with a tougher financial landscape. Despite these setbacks, millennials are taking smart steps toward securing their financial future.
Douglas Boneparth, president of Bone Fide Wealth, highlights that many millennials are using the hardships of the Great Recession as motivation to build a more solid financial foundation. He believes that this experience has made millennials more aware of the importance of savings and emergency funds, allowing them to enter the accumulation phase during their higher-earning years with confidence.
Melissa Joy, a Certified Financial Planner (CFP) and Certified Divorce Financial Analyst (CDFA), shares a similar sentiment. She observes that millennials are making responsible choices with their money, particularly when it comes to retirement planning through company-sponsored programs. Once they get a handle on balancing debt and savings, many millennials seek advice on the next steps to grow their wealth.
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Joy also reassures millennials who feel like they’re behind. She notes that for those entering their peak earning years, now is the perfect time to start investing and maximizing their financial potential.
The Importance of Emergency Savings
All financial advisors agree: having an emergency savings fund is critical to long-term financial success. Life can be unpredictable, and having a cushion can help millennials stay on track with their financial goals.
While some may be tempted to skip building an emergency fund and dive straight into investing, Joy emphasizes that the high average credit card interest rates—currently around 22.75%—make this a risky move. Even the best investments struggle to beat that kind of interest rate.
Boneparth also stresses the importance of feeling financially secure before jumping into investments. “Starting early is important,” he says, “but what good is compounding if you can’t stay invested?” Having an emergency fund ensures you can handle life’s ups and downs without derailing your long-term financial goals.
Setting Clear Financial Priorities
Millennials who succeed financially tend to have well-defined goals and priorities. As Thomas Kopelman, co-founder of AllStreet Wealth, explains, “You can’t have everything you want, so it’s crucial to decide what’s most important to you.” Creating a list of priorities—and identifying areas where you can cut back—helps focus financial efforts.
Many financial decisions are driven by psychological factors as much as they are by numbers. Boneparth advises millennials to think about what they truly want and let those goals drive their motivation. If you’re unsure about how to prioritize your financial goals, working with a financial advisor can provide clarity and direction.
Give Every Dollar a Job
With millennials earning only 80% of what baby boomers did, managing finances requires careful planning. Nathaniel Hoskin, CFP and founder of Hoskin Capital, suggests assigning every dollar a purpose through budgeting. Whether you use a traditional budget or a modern app, the key is to track where your money is going.
Boneparth encourages millennials to be honest about their spending, advising them to base their budgets on actual expenses rather than estimates. Hoskin recommends reviewing the past three months of spending to get a clear picture of income versus expenses. Budgeting apps can make this process easier and less daunting.
Focus on Reverse Budgeting
Once you’ve tracked your spending, you’ll either find a surplus or a deficit in your budget. If money is tight, Hoskin suggests reverse budgeting—where you set aside money for savings or investments before allocating funds for other expenses. By automating these savings, you can ensure you’re working toward your future without the temptation to spend on unnecessary items.
Kopelman echoes this sentiment, adding that automation helps trick your brain into sticking to your financial plan. Consistently saving for your future self before spending on daily needs can have a big impact over time.
Take Advantage of ‘Free Money’
One of the easiest ways millennials can improve their financial situation is by taking full advantage of employer-sponsored retirement plans, especially any available matching contributions. Not contributing enough to get the full employer match is essentially leaving free money on the table. Hoskin advises millennials to prioritize these matches as part of their long-term financial strategy.
Create a Comprehensive Financial Plan
Once you’ve built an emergency fund and maximized employer retirement contributions, the next step is to create a detailed financial plan that aligns with your goals and priorities. One popular budgeting framework is the 50/30/20 rule, which allocates 50% of income to needs, 30% to wants, and 20% to savings. While saving 20% is an ideal goal, financial advisors suggest starting with 10-15% and gradually increasing that amount over time as your income grows.
Melissa Joy calls this practice “matching your lifestyle creep with your savings creep.” As your income increases, avoid inflating your lifestyle and instead focus on increasing your savings rate. A financial advisor can help you regularly reassess your budget and savings to ensure you’re staying on track.
Invest for the Future
Financial advisors also stress the importance of taking advantage of tax-efficient investment accounts, such as Roth IRAs. These accounts allow millennials to contribute after-tax dollars, and the funds grow tax-free. When the time comes to withdraw the money in retirement, it can be done tax-free as long as the withdrawals happen after age 59½.
By focusing on consistent savings, budgeting, and investing in tax-advantaged accounts, millennials can overcome the financial obstacles they’ve faced and build a secure future for themselves.
In conclusion, while millennials have experienced unique financial challenges, they’ve also demonstrated resilience and adaptability. By setting clear priorities, budgeting effectively, and taking advantage of expert advice, they can continue to build a strong financial foundation for years to come.
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