Millennial Money Makeover summary

Forget stocks, bonds, and equity. Your greatest financial commodity is your confidence.

Financial confidence is the secret ingredient that empowers you to take control of your money and start making smart financial decisions. It’s not tied to how much you earn, either. You could be earning a lot of money but lack the financial confidence to convert your salary into monetary freedom. Conversely, you could be making a moderate wage except, with financial confidence, are able to convert your income into real, lasting wealth. 

Being in debt can be an isolating experience. Your peers are out there flaunting new purchases on Instagram, while you’re up at 3am wondering if you’ll ever be able to pay off your credit card bills. Rest assured, if you’re in debt, you’re not alone.

Take credit card debt, for example. In 2017, according to the Federal Reserve, US consumers put $1.021 trillion worth of purchases on credit. Additionally, roughly half of millennials report having debt spread across more than three credit cards. 

Millennials, or so the stereotype goes, would rather spend their hard-earned cash on avocado toast than into savings. If they budget right, though, millennials can have their avocado toast and save, too.

It’s all too easy to equate budgeting with cutting out purchases that, while inessential, bring passion and meaning to our lives. But, guess what? The secret to budgeting doesn’t lie in living ascetically, it’s in prioritizing purchases that bring you pleasure. 

Sick of taking the bus to work every day? Ready to stop lining your landlord’s pockets with rent checks? If you’re on the brink of making a big-ticket purchase, like buying a car or investing in property, be smart about it.

Here’s the thing about investing in a car – it can’t be done. That’s because a car isn’t technically an investment. An investment appreciates, meaning its value grows over time. A car is an expense that depreciates, or loses value year after year. According to a survey by Carfax, the typical new car depreciates by 10 per cent the minute you drive it out of the dealership. 

Thinking about how to fund your future can be stressful. But don’t get overwhelmed – take control! Meeting three simple savings objectives will get you on the right track.

Your first savings goal should be an emergency fund, with enough in it to cover any unexpected expenses that might otherwise push you into debt. As a rule of thumb, the typical millennial should aim to have about $3,000 stashed away. Make sure this money isn’t tied up in investments. It should be easily accessible in the event of an emergency. This is, after all, what it’s there for.

You work hard for your money, but does your money work hard for you? When you invest, you put your money to work. As a result, you can quickly grow your capital. 

But how does investing work, exactly? Here’s the basic principle. Money has utility, or buying power. When it’s sitting in your account, untouched, you’re not accessing that potential utility. Lending your money to a third party, like a bank or a fund, allows them to use your money to turn a profit. In exchange, that third party offers you a rate of return, or a percentage of any profit they’ve made with your initial investment. There’s a catch, though. If that third party doesn’t make a profit, you won’t see a rate of return. You might even end up losing your initial investment. Nevertheless, investing wisely is the surest way to grow your finances.

Now that you’ve given your finances a makeover by paying off your debt, streamlining your savings, and started investing, it’s time for the finishing touch: setting your accounts and investments to autopilot.

To begin, find your financial flow. Every month, as your salary comes into your checking account, it’s up to you to divert that stream of money so that it flows to meet your financial goals. Establish how much of your monthly income you want to put towards paying off debt, bulking up savings, and growing investments. If you’re tackling a student loan, set aside 15 percent of your monthly income for making loan repayments. To do that, set up an automated payment for that amount which will go from your checking account to your student loan account every month. Do the same for savings and investments. With your financial flow established, you don’t have to think about how to allocate your finances each month.