- Sit down and honestly take stock of your financial life.
- Fight off your fears – pay off your debt, make a budget, and tackle your bills.
- Avoid high-rent lofts, pay attention to your 401k, and prepare for your dream house.
Part Of Our Series On Tackling Your Scary Personal Finances
Halloween brings with it all sorts of frights. And as we grow older, our fears of witches and ghosts are replaced by the more temporal concerns of planning for retirement, providing for a family, and working hard toward financial security.
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Today’s Millennial generation (myself included) in particular faces unique financial challenges. We’ve climbed out of a recession. We’re part of a generation where “entry-level job” means minimum wage internship more often than not. And we’ve witnessed college tuition and student loan debt skyrocket higher than ever before.
It’s not easy to sit down and honestly take stock of your financial life, but it’s something you need to take seriously. The good news is, with a little careful planning this fall, you can be on track to overcome your financial fears by the holidays. So while you’re keeping trick-or-treaters at bay this Halloween, start checking your financial fears of this list:
1. Getting Out Of Debt
If you’re a Millennial, you’re probably fighting off debt left and right. Between student loans, credit cards, and medical bills, avoiding debt (or making any progress paying it off) seems impossible. Debt accumulates quickly, and many Millennials live in constant fear of watching it grow. Roughly 34% of Americans are stuck with credit card debt alone, and the average amount folks owe is $15,609.
Don’t want to be part of that statistic? Take the time to assess your debt and make a plan to aggressively pay it off. And most importantly, make sure that you aren’t carelessly creating more debt! That might mean putting away problematic store credit cards, and sticking to cutting back on your spending altogether. As a Millennial myself, I know the allure of going out with friends or buying those new designer shoes… But if you’re in debt, those are luxuries that can wait.
When you’re paying off debt, Bankrate recommends starting with a 3-5 year plan. Having a concrete goal in mind helps you stay focused. Once you’ve got a timeline, assess every last thing you can do today to chip away at your debt. If credit card debt is your nemesis, call your credit card company to see if they can lower your interest rate. If you’re facing student loans, committing to larger payments each month will help speed up the repayment process. That means taking bonuses, birthday money, and tax returns, and chucking them at your debt. Consolidating your loans can also help. You’ll only have one loan to track, and a fixed interest rate holds a lot of saving potential.
2. Creating A Budget That Doesn’t Cramp Your Style
Budgeting isn’t the sexiest topic, but it can be a necessary evil. An easy place to start is with the “50/20/30” rule. Set aside 50% of your take home pay for the “Essentials” (think food, rent, utilities, and daily expenses). Then, 20% should go to “Financial Priorities”. That includes retirement savings, debt repayments, and any other savings contributions. “Lifestyle Purchases” make up the final 30%, which you can also think of as the nice-to-haves but non-essentials — gym memberships, entertainment, shopping, beauty products, dinners out, drinks with friends, pets, etc.
I also recommend using Personal Capital’s app to track your spending against the budget you’ve set. Just link all of your financial accounts, and you can easily see where your money goes, broken down by category of purchase. Personal Capital’s app users actually begin saving around 15% more over the course of 6 months — when you know what you’re spending, you’re more likely to save.
3. Managing Piles Of Bills
If you’ve ever grabbed a bill from the mail, and let it sit, unopened, out of fear… You’re not the only one. But bills need to be faced head on. When you get yourself into the habit of opening all of your bills as soon as you get them, checking for errors, and paying on the spot, you’ll save money in the long run on late fees.
Things like your cable, phone, and even credit card bill are an easy place to start when you’re organizing your bill payments. Set up an auto-pay system for these items, and you’ll never forget another payment. For bills that you can’t autopay, just schedule recurring calendar reminders that will nudge you to get a check in the mail. And for those times when you have to take care of an unexpected bill, like a medical charge, keep an emergency fund just in case.
4. Being Unprepared For Financial Emergencies
What is an emergency fund, you ask? As the name suggests, it’s a fund set aside for emergencies — medical bills, car repairs, work setbacks, and the like. A good rule of thumb is to keep enough money to cover 3-6 months of your expenses set aside for emergencies, in liquid assets.
Building a solid emergency fund might take living below your means for a few months, but you’ll be happy you did it if disaster strikes. If you suddenly lose your job or apartment, you’ll be fine until you create a backup plan.
5. Delaying Retirement
Pension plans are a thing of the past, and that puts the burden to save for retirement on your diligence in contributing to a retirement account, such as a 401k. And if you ask most Millennials, they’re not banking on seeing income from social security. Half of Millennials don’t think it will exist by the time they hit retirement.
Without the right planning, retirement investing is one of the scariest, financial challenges that you’ll tackle. But all it takes to get on the right track is getting started! If your employer offers a 401k, sign up and max it out every month. Annually, you have the option to put $18,000 pre-tax into a 401k, and it will grow tax-free over time. That breaks down to $1,500 per month. And sure, $1,500 per month isn’t always going to be attainable when you’re early in your career, but it’s a lot easier to plan for before you have the financial responsibility of a family, spouse, or home.
If you want to see what your retirement looks like based on your income, spending, and financial plans, try Personal Capital’s Retirement Planner. The tool will forecast your likelihood of reaching your retirement goals, so you can course correct accordingly.
6. Renting Forever
Becoming a homeowner as a 20 or 30-something is a taller order than it used to be. With rent and the cost of a home soaring across the country, the reality today might be that you have to share space with a roommate or two for quite some time if you’re dreaming of homeownership later on.
Recent data shows that while fewer Millennials own homes than they did in the past (around 35% in 2015, vs. 44% in 2004), we do still want to own property some day. My advice is to keep your future dream home in mind, and don’t overspend on rent today. It may be tempting to sign a lease for that sweet loft in the best part of town, but think about your bigger financial plans before you do it. Zillow has a very handy rent affordability calculator that can help you determine what amount of rent is appropriate for your income, debts, and location.
Overcoming Your Financial Fears
So this Halloween, don’t let scary finance issues haunt your household. With a these simple tips and the right financial tools, you’ll be well on your way to gaining control of your financial goals.