Millennials have to deal with a considerable financial challenge even at the start of their professional lives. Saddled with debt due to their student loans, the generation also has to work on the limitations of their financial literacy since only 24 percent of millennials have adequate knowledge about balancing their finances.
And when the pandemic started, it had a considerable effect on their finances. This is especially true among millennials who lost their jobs after their employers closed their businesses. But the recovery of the economy should also signify changes in their lifestyles to allow them to deal with obstacles to financial independence.
If you are a millennial, you should consider the following tips so you can take care of your finances and prepare yourself for the future.
Set Goals and Manage Finances
Setting clear goals is the first step toward financial independence for millennials. These goals should be specific, measurable, and achievable. They should also be realistic and timely. For instance, you should aim to pay off a significant part of your student loan within a few years. Another goal you can set is improving your credit rating. When you achieve these goals, you’ll have a sense of satisfaction and accomplishment, which increases your motivation and allows you to focus on a new set of goals.
Aside from setting goals, millennials should also learn how to manage their finances. Working millennials should set aside funds for expenses, such as rent, food, and transportation. They should also make sure to have funds for personal expenses, such as clothing. And saving part of their income is also important.
While the 50-30-20 ratio is ideal for most people, you should decide how much you set aside for each expense, especially if you still have to deal with your student loan. While the student loan will take up a huge chunk of your budget, you should also set aside an amount for savings to ensure you have something to look forward to in the future.
Work on the Credit Score
A credit score shows the creditworthiness of a consumer and is based on a person’s credit history. As a person’s credit score increases, he will look better in the eyes of lenders. In this situation, he will pay a lower interest rate when he takes out a loan for purchases, such as a house or car. A good credit score also increases the financial leverage of a person.
You should focus on building your credit score by paying your credit card bills on time. You should also monitor your outstanding debt, including your student loan. Reducing your debt-to-income ratio allows you to free up some cash for other expenses.
And with the significant effect of the pandemic on the finances of many millennials, they must work on their credit score to ensure access to loans for major expenses, such as a car loan. Owning a vehicle is necessary during a health crisis.
If your credit score is not good enough, you should visit a reliable bad credit dealership that offers good car deals. These companies are not a strict as private financial institutions in providing loans to buy a car. They also have in-house financing programs that allow you to buy a car even if your credit score is not high.
Save as Much as You Can
The pandemic highlighted the importance of an emergency fund to tide you over, especially if you lost your job during the crisis. In the past, three months’ worth of funds is good enough to help you in case of emergencies.
But the pandemic underscored the importance of having more funds to cover the time you’re not working. So, you should set aside at least six months’ worth of funds to cover your expenses while you’re looking for work.
Even though the government released stimulus checks, these are not enough to cover your daily expenses. So, save as much as you can import. To maximize the potential of your emergency funds, you should consider putting them in a high-yield savings account. This account gives you a higher interest rate compared to a traditional savings account.
Aside from an emergency fund, you should also start saving for your retirement as early as possible. You should reach the maximum amount that your employer matches to take advantage of the retirement plan. In this situation, you will be better prepared for your retirement since you already have funds waiting for you in the future.
Financial planning is essential for millennials to allow them to become financially independent in the future.
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