Money Management for Millennials

Many Millennials are dealing with debt (student loan debt, credit card debt), living paycheck to paycheck, and dreaming of a better financial future. It’s untrue that financial planning only benefits high net worth people. There are some basic strategies that you can implement, regardless of how much debt you have or how much income you’re earning. Read on for six steps you can take.

1. Create a Budget
Even as a young adult, budgeting is critical. How else will you know how much money is coming in and going out every month?

Although most 20-year-olds understand they should budget, the reality is that many don’t actually stick to one. Get a budgeting system in place as soon as possible, review how you are spending your money, and make the necessary adjustments to ensure that you are living within your means and able to save for your financial goals.

The basic budget formula for after-tax income is:

  • 50 percent for fixed expenses, such as housing (28 percent or less for housing expenses), basic food, insurance premiums, etc.
  • 20 percent for financial goals. This would include extra debt payments, your cash cushion, retirement, etc.
  • 30 percent for variable expenses, such as dining out, entertainment, travel, etc.

2. Set Up Automatic Contributions for Saving
Most people don’t save because they make it way too difficult for themselves. Instead, review your budget and aim to start saving toward your financial goals by following the “pay yourself first” strategy.

Under this method, you automate your savings every month and you save before you spend money on variable expenses. The goal is to save 20 percent of your net income — but don’t let that amount scare you. Even if you can only start with $10 a month, that’s better than nothing. Every year, review and see if you can increase your savings amount.

3. Build Your Cash Cushion
The goal is to have three to nine months’ worth of your fixed expenses in a savings account, so you can pay for life’s unexpected incidents. Life always throws curveballs — your car breaks down, your computer crashes, or you receive an unexpected medical bill — and having money in the bank to cover those expenses will help you maintain your financial peace of mind.

If your fixed expenses are $3,000 per month, you should aim to build a cash cushion of anywhere between $9,000 and $18,000, depending on your comfort level, job security, etc. That sounds like a lot, I know. But remember, even if it’s $10 a week, that’s still one step in the right direction.

4. Watch Your Credit Score
Your credit score affects nearly everything in your financial life. It affects the interest rate on the car loan you apply for, as well as mortgage loans and credit cards — employers and landlords can even check your credit score when reviewing your application.

By monitoring your credit score, you’ll know where you stand and what you can do to improve it if needed. Use websites like Credit Karma to view your credit score (not your actual FICO) regularly, for free, and then view your actual credit score once a year using

5. Create a Debt Reduction Plan
The first step is to make a list of all your debts. Get clear about how much you owe, the interest rate of each debt, and the minimum payment due. Then review your budget to determine how much you can realistically add toward extra debt payments. Start with the debt with the highest interest rate, while paying the minimums on the rest. This will allow you to save the most in interest payments. Once the debt with the highest interest rate is paid off, move on to the second highest, and so on.

6. Start Saving for Long-Term Goals
If you have the ability to start investing into your retirement accounts after you’ve allocated some monthly funds toward building your cash cushion and paying off your debts, then set up an automatic contribution into your retirement account. By starting early, you can allow compound interest to work. If you are new to investing, make sure you do your homework and read investment books so you are clear about what to expect when investing for your future.

If budgeting, paying down debt, and saving for emergencies as well as your future feels like a strain, dont forget to consider ways you can increase your income. Your 20s are a great time to learn new skills and build your earning potential.

Brittney Castro is a member of the DailyWorth Connect program. Read more about the program here.

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