Managing finances does not come easily to everyone. Usually, the older you grow, the better you get at it. The implication is that younger people find it quite daunting to handle their finances. According to a study done by the Financial Industry Regulatory Authority (FINRA) in the United States, most millennials are plagued by debt, poor financial habits, and low financial literacy. In order for millennials to dig themselves out of this hole, they ought to first understand where the rain started beating them.
1. Understand Your Debt.
Debt is not necessarily a bad thing. When your cash flow is not sufficient to cover your needs, it is acceptable to take on a reasonable amount of debt. However, there are ways to control your debt. It is possible to take back control of your money with the right financial advice regardless of how deeply indebted you are. Understanding your credit rating improves a person’s ability to settle financial obligations that are due.
Certainly then, inability to pay off a debt will dent a millennial’s credit rating. The impact will be that the millennial will not be able to access credit that could have easily gotten him or her out of the hole. All you need is a plan and the will to see it through no matter what.
Unemployment rates have been fairly high. It is possible that millennials will take on a huge amount of debt in the hope that they will pay it off when they start earning only for them to end up with low paying jobs or no job at all. You need to be cautious of the amount of debt you have. When the obligation is due, the lender will come to collect. Inability to pay will be ‘rewarded’ with fines which will tag on more debt.
2. Break Poor financial habits.
Millennials are generally trigger-happy when it comes to spending money. Sticking to a budget is not exactly fancy. Their focus is largely on short-term financial goals such as saving for a trip due in a month as opposed to long-term financial goals such as saving for retirement. Millennials have also fallen in love with credit cards that are maxed out on nights out, sandwiches and city breaks. Credit cards are not bad if you know how to use them. In fact, they could earn you travel points that can be redeemed for trips and discounts. The secret with credit card debt is to pay it off in full at the end of the month before it accrues any interest. Spending on short-term financial goals is also not bad but long-term goals should also be considered.
3. Improve Low Financial Literacy.
Millennials have little to no financial knowledge of issues such as budgeting and the spending percentages recommended for particular expenses such as housing and entertainment. The simplest way to eradicate this is to read far and wide. There are many resources available on the internet that can sharpen the minds of millennials. Rather than watch that episode of Big Bang Theory during their leisure time, it is in the best interest of millennials to read up on finance to broaden their knowledge.
All in all, millennials ought to know that their financial future is in their hands. It is important for them to understand the difference between a need and a want. Afterward, they should stick to a budget that hopefully has all their needs and a few wants if any. It is never too late to start. Take control of your financial life now.