A commonly misunderstood millennial stereotype is the age group’s spending habits1 – eating out regularly, spending money on travel and not thinking about saving for long-term goals. However, studies show that millennials are focused on saving, investing and paying down their debt.2
Despite paying for weekly dinners at restaurants and buying coffees every day, home ownership seems to be the carrot on the stick that keeps getting further away. About a quarter of millennials currently own the house they live in and only 43% of them are looking to buy in the next five years.3
However, buying a house and saving for retirement isn’t impossible. Saving money when you’re young and single is smart; having a financial plan may help you achieve your financial goals sooner. And if it includes living in your parents’ basement for a little while, so be it – you’re not the only one saving on rent.
If you’re a millennial that’s stressed about your finances, here are some steps that may help you achieve your financial goals.
Create a budget
Maybe you don’t have to worry about things like utilities or property taxes just yet. That doesn’t mean you can’t create a budget to see where your money is being spent. If your short-term goals are saving for things like traveling, seeing a concert or attending a sporting event, budgeting can help you achieve your goals.
Start by totalling all the money you bring in every month and then compare that with your expenses. Make note of both fixed expenses (car payment, student loan re-payment, etc.) and general expenses (going out to restaurants, movies, etc.). If you need help keeping track or allocating the right amount to different expenses, there are apps that can help.
Remember, you’ll want to make sure you’re earning more than you’re spending so you’ll have money left over for either saving or investing. If you’re running a deficit, try to cut back on small expenses that add up like eating out or buying a coffee every day.
When it comes to saving and investing it’s never too late to start tucking some of it away. In fact, as a millennial you have one useful advantage over those who have been investing for years – time. The earlier you start saving, the more time you’ll have to take advantage of things like compound growth and interest.
Set financial goals
Why should you set a financial goal? Identifying what you’re working towards is a first step toward financial success, and it helps make future planning decisions easier.
Whether it’s a long-term goal like buying a house or a short-term goal like saving up for a short getaway, you’re more likely to achieve your goals with proper planning. Setting aside money every paycheck or each month will add up over time. Meanwhile, creating a good goals-based financial plan will give you a clearer picture of what you are saving for. There are also advantages to opening an RRSP or TFSA you might not know about that may help you reach those goals.
Are you having a tough time coming up with something to save up for? Maybe you have credit card or student debt and want to get rid of it. You’ve found your financial goal. A good strategy is to pay off as much debt as you can before other bills and expenses start piling up, so you can save for your other goals.
Prepare for the unexpected
Even though you’re young, unexpected events could happen. It’s important to protect your money in case something does happen to you.
There are options like individual disability and critical illness insurance that can help supplement your income in case you get injured or sick and can’t keep working. You may want to consider this if you have rent and other bills that need to be paid on a regular basis.
You might also want to start an emergency fund you can access in case you need money quickly. Having available cash that you can use for things like car repairs, taxes, or other surprise expenses can help you avoid taking out loans and creating additional debt for yourself.
Connect with an advisor
You’ve come up with your goals and you’re starting to save your money. What’s next? Talking with an advisor can help give you added insight and expertise on how to tailor a plan that fits your needs, and possibly highlight a few things you may be overlooking.
For instance, life insurance may not be on your radar right now, but did you know insurance is typically most affordable when you’re young and healthy? Buying life insurance when you’re younger often gives you the lowest possible premiums because, to take one example, risks to your health increase as you get older. Your coverage is often guaranteed, and some policies allow you to renew your coverage without medical exams.
Locking in at a lower rate can help keep your payments more affordable, especially when you may have other expenses like buying a new vehicle or owning a house. An advisor can help you meet your financial needs now and in the long term.
Review your plan
Regularly check your plan with your advisor to make sure it still meets your needs as your financial situation continues to evolve.
Your goals will likely change over time. As you change jobs or get a raise, you may want to allocate your money differently or increase your investments. Keeping in touch with your advisor can help you navigate any changes to your finances and adjust as necessary to ensure your plan is sturdy and your goals are still attainable.
The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature, and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.