Published on February 17th, 2015 | by Pete0
Improving the Financial Health of Generation Y
Adults by age, adults by nature; yet we millennials are still struggling to afford our adult lives.
High levels of student debt teamed with steep rent, low incomes and lack of financial understanding: the financial health of Generation Y is in a bad condition. Front-row seats to the economic recession have instilled in Generation Y a mistrust of banks and investing, and the difficulty of establishing our chosen careers at a desirable salary level has resulted in frequent job changes and periods of unemployment.
Further to this, financial illiteracy hampers most millennials as they lack both the knowledge and confidence to make informed, effective decisions with their finances. Instead of being proactive about improving this, we millennials are inclined to shy away from financial responsibility completely – assuming that the future will take care of itself.
With over half of millennials stating their top financial priorities as covering basic living expenses and paying off debt, it seems that right now millennials can’t even contemplate a future financial plan never mind being able to put money towards one.
As a generation, we have given up on the belief that we will ever be financially secure as our parents and have readily accepted the prospect of never being able to fulfil the lifestyles of which we dream. However, we have time on our side. Retirement is decades ahead, and becoming more financially savvy can happen as quickly as we want it to. All that is needed are a few feasible changes which can be implemented in everyday life to help us get a better grip of our finances.
You will be amazed at how far the simple task of budgeting can make your money stretch. The first step is to create a breakdown of how much you are able to spend each month on your interests, travel and clothing after considering the essential expenses of rent, savings, student loan payments and food. Document and prioritise these deductions in an excel spreadsheet that details how much cash flow you have coming in every month. Having a visible representation of your monthly finances will encourage you to live within your means, eliminate insignificant spending and be realistic about how often you can afford to treat yourself.
Whether you can afford to contribute little or a lot, it is essential to set aside some money from each pay check to put towards your savings. Savings can be contributed towards retirement, kept for long term goals or act as a contingency fund.
If you don’t already have one, it would be wise to open a bank account that is tailored to suit the specific purpose of holding your savings. By automating a percentage of your pay check to be transferred into your savings account, you can keep the amount of your monthly contribution consistent and avoid the temptation to use the money before you have the chance to manually transfer it.
Using credit cards responsibly
Debt is a strongly-associated stigma of credit cards which, in truth, can rack up quickly if not managed well. However, using a credit card responsibly is one of the easiest and most reliable ways to build a strong credit history which can be the catalyst of getting financial backing in the future.
Not having a credit rating can limit you financially more than you might imagine – without a strong credit rating you will find it difficult to be approved for a mortgage, which will in turn restrict your opportunity of receiving a loan. This is because you need to be a homeowner in order to apply for a loan that is not based on your credit rating – this is called a secured loan.
Using a credit card at this stage in your life need not be daunting – by using credit for only small purchases and continuing to clear the balance on time you are able to avoid interest charges whilst establishing a formidable credit history of responsible borrowing.
As the most technologically-savvy generation, we should be the first to take advantage of the host of apps that exist to help us in the area of budgeting and personal finance. Some of these apps not only help you track your income and expenses, but also allow visibility of financial state as a whole by securely syncing your bank and card details.