Although millennials are still young, they are saddled with various financial responsibilities. Without a proper budget, these consumers may stay stuck in debt.*
One of the biggest problems millennials encounter is reducing their debt. Right out of school, they may have low-paying jobs that make them unable to make debt payments. According to a 2014 Wells Fargo survey, 42 percent of those between 22 and 33 said debt was their No. 1 financial concern. However, by using money wisely and being more accountable, they can achieve big-ticket purchases and other dreams.
Four things to be prepared for in your millennial budget:
1. Student loan responsibilities
While millennials are the most educated generation, they had to pay a price. College and university expenses are rising, and many young people are graduating with thousands in student loan debt. According to college expenses and financial aid website Edvisors.com, the class of 2015 is expected to have a record-high level of debt, reaching an average of $35,051.
In their financial plan, graduates will have to implement ways to reduce their debt with their savings and income. In making financial progress to pay student loan debt, borrowers could use various financial strategies, such as the snowball method. Developed by financial expert David Ramsey, the debt snowball strategy has consumers paying more on one bill or account compared to other credit obligations. Concentrate on getting the smallest debt out of the way before moving on to bigger amounts.
2. Emergency funds
Despite some millennials living paycheck to paycheck, it's crucial to build up emergency savings. They could put this money toward unexpected car repairs or other bills. Allocate a certain percentage of each check toward emergency funds. This account should ideally have between three to six months of living expenses to guard against any major income disruptions, such as a job loss. For instance, if Gen Yers expect to save $5,000 in their emergency fund altogether, they could put about $416 each month toward this savings target.
3. Retirement savings
According to the Wells Fargo survey, 55 percent of millennials saved for retirement in 2014. However, many were not sure the amount of money they will need after leaving the workforce. About 40 percent of Gen Yers were unable to give a figure for how much they will need to have a comfortable retirement. Millennials should use a retirement calculator to estimate the costs they may incur in the future, including medical and housing expenses. They can also list their anticipated sources of income, e.g. Social Security, pensions and 401(k) retirement savings.
4. Financial goals
Whether consumers aim to become financially stable or reduce unnecessary spending, a budget should ultimately serve a purpose. Members of this younger generation should consider coming up with long-term goals that their plan can accomplish. According to Zillow, in 2015 millennials will outnumber Generation Xers in the housing market. This generation can help themselves by considering their budget for these large purchases. Consistently putting a little in savings each month can make all of the difference.
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