How young adults can take control of their financial future

Youth is a golden financial opportunity. On average, the younger you are, the fewer expenses you have. People in their 20s are more likely to live at home or with roommates than their older counterparts, and they’re less likely to have big expenses like mortgages or children. Theoretically, young adults should be in a great position to plan for their financial futures.

The reality, however, isn’t quite as clear-cut. According to a 2018 LendEDU survey, almost half of millennials spend more on dining out each month than they set aside for retirement. Thirty-seven percent of those surveyed don’t save for retirement at all.

Although retirement savings isn’t the only indicator of financial success, the numbers still paint a disquieting picture. The question arises: How can young people take hold of their finances and give themselves a strong foundation for the future?

A Culture of Financial Pessimism

Millennials entered the job market between 2002 and 2012, a decade marked by economic turmoil. The generation’s careers have been defined by scarcity and contradiction, and it’s taken its toll. According to the 2019 Deloitte Global Millennial Survey, only 26% of the generation is optimistic about the country’s economic future. The study as a whole characterizes today’s youth as a “generation disrupted,” one which “continuous change and upheaval have [altered] at its core.”

Different Limits, Different Solutions

 Another challenge today’s young adults face is some traditional financial advice feels saccharine when applied to reality. Nearly two-thirds of millennials feel they are living paycheck to paycheck. For them, increasing retirement savings can seem like a lofty, if not impossible, expense. This is to say nothing of shorter-term goals, such as saving up for a house down payment.

Young adults must, instead, reevaluate and redefine their financial goals. It’s no longer a matter of following old formulas. Rather, they must take a personalized and active look at their own finances so they can make a concerted effort to invest wisely, spend mindfully and save what they can manage. Put simply: It’s all about the hustle.

Investing for Profit

Technically speaking, all investment is in pursuit of profit. However, not all investments are equal. Retirement investing, for example, is designed to gather returns gradually over a long period of time. This is ideal for long-term savings, but those hoping to increase their current income might consider other forms of investment.

For example, young people may consider investing in real estate. There are several advantages to this kind of investment. For starters, it functions as both a long- and short-term investment. Investors see returns in both monthly rent and the property’s overall value increase. Moreover, there are several different types of real estate investments, including renting, flipping properties and investment trusts. They all have different levels of involvement, requisite skill and risk, so investors can pursue the path that’s best for them.

Spending with Intent

 One way young adults can empower themselves and react proactively to their financial pessimism is to spend with intent. This means building – and then sticking with – a budget.

Start by tracking your monthly spending. You can use a phone app such as YNAB to easily add spending on the go and to evaluate your spending on a larger scale. Once you have a sense of it, use your current spending as a launch point for your ideal budget.

One way to feel empowered when making budget cuts is to reallocate frivolous spending and find ways to put that money back into the community. Reducing your restaurant budget will feel a lot better if you know that money is going toward a cause you care about.

A proactive, intent-driven approach to budgeting will help young adults manage rent, student loans and general living expenses while still making room to contribute to their own (and society’s) future.

The Pursuit of Saving

Some will evaluate their monthly spending and find a distressing lack of wiggle room. For those truly living paycheck to paycheck, it may not be a simple matter of going out to eat less or cutting back on their coffee habit. In this situation, finding ways to reduce spending will not be a matter of cutting out luxuries: It’s a matter of restructuring the basics.

For example, you can spend less on groceries by putting as much crossover into your weekly menu as possible. By planning your meals for the week, you can make the most of ingredients and also reduce food waste. You can also pay attention to sales, buy in bulk and use coupons to cut down on your total grocery costs.

You can also save money on basics by picking up new skills. For example. if you learn a few basic sewing skills, you can buy and tailor secondhand clothes. This leaves you with a bespoke wardrobe at thrift shop prices. DIY skills can be a great budget saver if you can evaluate your spending and what you can save on by doing it yourself.

You want sustainable, long-term solutions that allow you to take control of your finances. Remember that knowledge is power. The more you know about your finances and the earlier you start can increase your potential savings. By using solutions that fit your lifestyle, you can make your money work for your present and your future.

Guest author: Gloria Martinez

Posted: March 11, 2020

Photo Credit: Pexels