It’s troubling when I hear young people brag about their recent financial decisions, not realizing how much this sets them back in the long run. A six-figure student loan debt, piling credit card debt, bought a $60,000 luxury car, put a down payment on a 30-year mortgage, all at the same time? Enjoy being in BAD debt for a long, long time.
In my opinion, society does a terrible job educating our youth (millennials especially) on personal finance, inevitably setting most people up for failure. If this is you, take responsibility and begin educating yourself NOW on personal finance with online forums, books, blogs, and magazine articles! My personal favorite is the sub-Reddit personalfinance. Go read those side bars people!
One of your main goals in life should be to reach financial freedom. The sooner the better. Financial freedom DOES NOT mean you earn six figures or a million dollars per year. Individuals who make $1 million dollars, then spend $1 million dollars every year aren’t financially free, just irresponsible with their money. I personally believe you reach financial freedom when unexpected expenses have ZERO impact on your livelihood. It’s a great feeling knowing that you’re financially okay, even during tough personal and economic times.
Time for millennials to begin achieving their own financial freedom!
You Need A Budget
If you start learning how to budget your money post college, you’re already late to the party. Budgeting should start with your first job ever, whenever that may be (the younger the better). Generally, people who begin working in their younger years end up being more responsible with their money compared to people who wait later in life to start working.
Budgets aren’t a prison and are not meant to make your life miserable nor restrict you. A budget allows you to track all monthly/yearly expenses, so you know exactly WHERE your money is going! With budgeting, you’ll be able to see how much money’s left for either saving or investing! Don’t just spend your extra cash on useless materialistic items that provide temporary pleasure.
Once you start budgeting, you’ll realize how much money you waste. Money saving killers, like eating out regularly or going for drinks once a week, adds up to tons of lost money. You shouldn’t be spending your extra cash flow until you’ve a.) created 3-6 month salary’s worth of emergency funds in a secure savings account (in case life hits the fan), and b.) contributed the maximum amount of money needed to get your employer’s full 401(k) match (why not, it’s free money).
I personally use an already created excel budget from budgeting Reddit. Also, software like Mint is very popular but requires you to give access to your bank accounts (look into this beforehand). YNAB is also a paid site that organizes everything for you. My suggestion is to use an already created free excel file and manually insert/adjust values yourself. Visually seeing where your money is going keeps you much more aware of your financial situation.
Credit Card Debt
Too many times I’ve seen people make purchases on credit they can’t afford, thinking, “screw it, it’s a credit card.” What an idiotic way to get into endless debt. NEVER think this way, ever! Credit cards aren’t free money.
But credit cards do have their purpose. They build your credit score, allowing you to take out large loans, and also come with beneficial point systems. The only problem with credit cards are the majority of people who use them. When people become irresponsible, then credit cards become one of the most detrimental little square piece of plastic you’ll ever see. I suggest waiting to get a credit card after you’ve completed college or began your career. In your youth, use CASH only. This will save you tons of money! Countless studies have shown that people have a harder time spending cash compared to using any debit or credit card.
If you do decide to use a credit card, be responsible and pay off the ENTIRE credit card bill every month. If you can’t do this, then don’t even think about opening a line of credit.
So, what are the consequences of just paying your minimal monthly credit card bill?
- Paying your debt back will take longer, thus you spend more money on interest paid in the end.
- Your interest rates will go up, also making your total amount of interest paid increase.
- Possibly ruin your credit score, preventing you from taking out loans on larger purchases, such as financing a car or home.
For those that aren’t aware, credit card interest rates are sky-high at 15%, which are much higher than student loans. The average credit card debt per U.S. adult is $5,839. Using a credit calculator, if it takes the average American 12 months to pay off the average credit card debt with monthly payments of $527, you’ll end up paying around $485 in total interest! That’s $485 that could be invested or put into your own business!
Don’t waste your money.
Student Loan Crisis
Having manageable student loans post college, is what I think, is the key to early financial freedom for millennials.
At the current rate, the average and total student loan debt in America is getting more and more every year, and I don’t see these trends changing anytime soon. Make use of community colleges, scholarships, or any financial aid to reduce the amount of student loans needed.
Also, have a REALISTIC idea of your income after college. If you’re getting a bachelor’s degree, you most likely won’t be making $100,000 starting off, or ever (depending on the cost of living in your area of course). The average starting salary for student’s graduating with bachelor’s degrees in 2016 was $50,556 (Time Magazine). Do not take out six figures worth of student loans for this, it’s not worth it! I recommend limiting your student loan debt to half of your starting salary. Of course, this will affect what school you decide to attend, and also what degree path you choose.
The average U.S. student loan debt was $39,400 in 2017 and took the average loaner 21 years to pay this off. If it does take you this long, you’ll end up paying $34,705.72 total interest!!!!! That’s a s**t load of money! Now let’s use a $30,000 student loan that’s paid off in 5 years with a 6.8% interest rate. You’ll end up having a monthly payment of $592.21 and a total interest of $5,472.54 paid in the end. By far much more reasonable!
The point I’m trying to make is the larger the student loan debt, the longer you’ll drag out student loan payments, thus paying way more money on interest than your degree might even be worth. Do what you need to do to pay student loans off as quickly as possible. Consider living with roommates, cheaper apartments, or even with your parents to pay this off.
Lastly, put lots of effort into becoming financially literate. Learn something new about personal finance daily, no excuses. This is one of the greatest downsides of the millennial generation in my opinion. No one takes the time in their late teens and early twenties (including myself) to develop their minds FINANCIALLY.
Hopefully you’ve enjoyed this post that’s geared more towards personal finance! I’m starting to dabble more into stock and real estate investing, and I look forward to sharing my knowledge and experiences with everyone on this blog! Let me know what you think!
If you’ve missed last week’s post on “What I Would Tell My 18 Year Old Self”, click here! As always, don’t forget to like, comment, share, and subscribe!
“Financial freedom is freedom from fear.”
Book of the Month: “Ordinary Men: Reserve Police Battalion 101 and the Final Solution in Poland” by Mark Manson