Steps To Financial Freedom For Millennials
Posted on January 14, 2021 in Money
There are few generations that have had as rough of a time financially as millennials. Between the events of September 11th, 2001 and the subsequent wars, the exploding cost of tuition for higher education, drastic increases in cost of living, and the housing bubble collapse of 2008, it really comes as no surprise that 62% of millennials say that they are living paycheck to paycheck with only 38% saying that they feel financially stable.
The average net worth of an American millennial is less than $8,000 total, which is worse than any other generation before them, and 58% report having a savings account with less than $5,000. Student loans and credit card debt is so rampant that 60% of millennials define financial success as being debt-free regardless of total net worth.
While the outlook is a little bleak, there are still plenty of ways for a millennial to achieve financial freedom.
Step 1: Set Clear Goals
The very first step on the path to financial freedom is taking the time to stop and figure out exactly your definition for the phrase. The more detailed of an answer and the more defined the goals, the easier they will be to achieve.
Owning your own home, paying off all debt or having a net worth of $25,000 or more are all examples of reasonable goals for any millennial to set for themself.
Obviously, the details of any specific financial situation may make some of these goals much harder to reach but with a clear goal in mind it will be much easier to find a clear direction and path forward. Whatever the goal is for any millennial the path will pretty much be the same.
Step 2: Create A Budget
This step can be tedious and even a little disheartening, but it is absolutely necessary in order to get on track to accomplishing the goals set earlier. The more information available about exactly where your money is going each month, the easier it will be to “plug the leaks” and get that money going somewhere more beneficially.
The idea here is anything that your money is spent on during a regular month should be accounted for with the average amount being spent. Some examples would include:
- Phone and Internet
- Student Loans
- Credit Card Debt
In addition to the expenses per month, include the income as well. Anything that could be done to bring any extra dependable income per month should be considered. If overtime, a second job, or just a side hustle are options, they should be explored intently.
Whatever the case may be, once all the income numbers are added up, there should still be money leftover after all the monthly expenses are covered. The idea here is to try to reduce any monthly spending in any way possible.
Start looking at items as “wants” versus “needs.” Things like food and groceries are needed but does it have to be at a restaurant instead of being cooked cheaper at home? Housing is a need but are there cheaper options or ss bringing in a roommate an option? Instead of a car, is taking the bus or bicycling to work possible? Maybe reduce the amounts of nights out of the town for some more money friendly nights in?
Asking if you want an item or need an item can go a long way to helping reduce a budget dramatically. Whatever the amount saved each month will add up quickly in the long run and anything reasonable to reduce or eliminate should be considered.
Step 3: Pay Off Credit Cards and Student Loans As Quickly As Possible
Now that a detailed budget has been made and spending reduced in order to maximize every penny, it’s time to focus on paying down debts.
Millennials had an average of $36,000 in debt in 2018 excluding home mortgages, with the large majority of that debt consisting of two factors: student loans and credit cards. That can be a tremendous amount of debt to overcome, but if it’s not being paid off, then it’s being compounded by interest and late fees which will not only add to the debt but do significant damage to your credit score as well.
The bottom line is the worse that a person’s credit score is, the harder it will be to climb out of debt. There are quite a few different ways to tackle the problem of paying off debt:
- Personal Loan and Debt Consolidation
If you have multiple credit accounts open it can be quite a challenge to say on top of them and make the monthly payments on time. This option focuses on rolling multiple accounts into one account that can make it much easier to manage and continue to pay down. By taking out a personal loan for the total amount of the debt and slowly paying that back over several years, it removes the hassle of dealing with multiple open accounts that have varying terms and conditions while breaking the payments into one even monthly payment. If the loan has a better interest rate than the current accounts it will also have the added benefit of saving money in the long term.
- Debt Snowball and Debt Avalanche
If getting a personal loan is not an option or you find juggling multiple accounts to not be an issue, then the options of debt snowball or debt avalanche may be the best choice for you. While similarly named, these methods have some key differences in approach. Both are contingent that every single account is budgeted to be paid at least the minimum monthly payment so as to avoid late fees or credit score issues.
The difference comes in the form of extra funds and which account they will go toward. With debt snowball, any extra money will go toward the debt with the lowest total balance regardless of interest rate. This method will help close out accounts faster but may end up being a little more expensive than its counterpart. Debt avalanche is the opposite and the focus goes to the debt with the highest interest rate regardless of total balance. The accounts will stay open longer and take more time to pay off, but it will result in a little bit more saved money long term.
- Debt Forgiveness and Debt Settlement
If neither of the above options are possible then it may be time to try something a little less proven. Debt forgiveness is a rare occurrence but it is a possibility. In the case of student loans, financial hardships can be granted that could result in a majority, if not all, of the student loans being forgiven, and is at least worth an attempt. Debt settlement will require a little more negotiating but is very much a possibility as well. Credit cards and student loans are both considered unsecured loans so there is no collateral offered. As a result these loans often go unpaid and the lender sells the debt to a collection agency and often for pennies on the dollar. The idea here is to find a number that is more than what the lender would make selling the debt but less than the total amount owed. Most people attempt this negotiation themselves but bringing in outside assistance can be a good idea to help the process.
The Takeaway: Millennials have had a rough path financially but there are ways to get on track. Setting clear goals, making and sticking to a budget and paying off debts will go a very long way toward reaching financial freedom.
The path to financial freedom can be a long one that requires tremendous patience, discipline and even luck to achieve. But figuring out a plan, sticking to it, and slowly chipping away at debt can eventually reduce a mountain into pebbles given enough time.
Historically, millennials have struggled harder financially than any previous generation and largely through no fault of their own. But ultimately it’s going to fall on each individual millennial to pull themselves out of their desperate situation and into financial freedom.
With the advice offered above, it is possible to find debt relief and accomplish whatever financial goal you have set for yourself!
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