Millennials are facing a more challenging financial future, but they can succeed with proper planning and money management.
People in their 20’s now have student loans, credit cards, and other debts they are paying off. Planning is essential to achieving financial goals.
GreenPath has found that clients with student loans average about $31,000 in student loan debt. While student loans may be necessary to pay for education, it is usually best to take out federal loans, as they have more favorable repayment options. Private loans can be more difficult to pay because most private lenders do not offer many payment plan options. GreenPath Student Services can provide more information on federal versus private loans, and can help you decide which is best for your situation. Other great resources for student loans are www.askheatherjarvis.com and the government’s www.consumerfinance.gov website.
One of the most important things to consider is to avoid credit card debt, due to high interest rates. Never spend more than you can afford to pay in full right away. If you are faced with credit card debt, try to pay off your cards as soon as possible and stop using them.
Also, many millennials will want to start saving for a home. You want to have at least a 5 percent down payment. Putting more down on a mortgage will help reduce your monthly payments, which can free up more for your emergency fund or retirement savings. Worst case, you typically want your mortgage payment to be no more than 35 percent of your gross income. Your total debt payments (including credit cards, car loans, mortgage, student loans, etc.) should be no more than 43 percent of your gross income. If you are considering purchasing a home, GreenPath offers housing counseling to help you determine how much you can afford and to prepare for homeownership.
Saving for retirement is a long-term savings plan. If your employer offers a retirement savings match, it is best to put as much toward that match as you can. Regardless of how you save, it is important to start saving NOW. Everyone needs to build savings into their budget. Whether it is $5 or $500 per paycheck, savings needs to start somewhere in order to build. I find that having an automatic transfer from each direct deposit paycheck into a savings account is effective because you never see the money and can’t use it for other items. You could do this for all types of savings including emergencies, vacations, purchases, and retirement.
This can seem very overwhelming to a young consumer just starting out. Millennials need to realize that they do not need to do it all at once and that saving for purchases is important. The key to financial success is to make sure you have a plan in place, and then stick to your plan. If you need help developing a budgeting and savings plan, GreenPath counselors can help you.
Category: Money Tips