What happened to Home Economics?
Remember when we use to have Home Economics in school? “Home Ec” where you learned about some of life’s basics, like doing laundry, fixing a broken piece of furniture or the foundations of your finances. Those days seem to be long gone. The Council for Economic Education says only a third of states require high school students to take a personal finance class to graduate. This has resulted in many millennials having a lack of basic financial know how that is critical as they navigate through life. To get millennials on the right track, take a look at the following suggestions:
Cash In and Cash Out
Many millennials don’t like the idea of a budget. They say it is too restrictive and don’t like the idea that their spending should be limited. Think YOLO (You Only Live Once)! A great way to reframe the idea of a budget is to focus on what is coming in and what is going out. Think of it like a money journal. When you track where your money is going, you can start to see how the little expenditures can add up. Do you really need to subscribe to 5 movie and TV streaming apps? These little costs, if curtailed can mean more cash in your pocket to save and invest. In addition, living within your means is also important when you are first starting out. It is easy to let the ease of credit card use take over and before you know it you are under a mountain of debt before you are 30. If you get used to spending only what you are bringing in, you can immediately start to put yourself in a better financial situation for years to come. It becomes a way to ensure money is spent on the priorities that matter most.
Take the Long View
Even after you take a look at cash in and cash out, it is critical that you start thinking about the long view. The sooner you start to save for the future, the easier it will be to develop good habits and not have to play the catch up game later on in life. The best way to get a jump start on this is to save 15% of your gross income. Pay yourself first, then live on the rest. If you pay your bills and expenses first, you often don’t have enough left over to save. By paying yourself first, you might have to cut back on some things, but the habit created will serve you far into the future. To start thinking long term, start by protecting your ability to earn income. Consider disability and life insurance, organizing advanced directives, and start saving for an emergency fund so you can pay cash for expenditures. Many people focus on retirement before they have an emergency fund saved, which means when they need money, they are forced to use their credit cards or withdraw from their retirement plan - both of which are poor choices. Get started, be diligent and develop good habits early.
Get to Know Your Favorite Uncle
Everyone knows Uncle Sam can take a big chunk of the money we earn, yet many are totally unaware of how taxes impact their money. Understanding what deductions you have available and how your paycheck gets divided up, can go a long way at helping you get ahead. Many millennials miss out on deductions for student loan payments or fail to take advantage of the Lifetime Learning Credit. This credit can be used for graduate school as an example. In addition, many don’t understand the importance of reporting income earned from side gigs. This oversight can certainly create a problem when Uncle Sam realizes you forgot to report income and pay taxes. There is also an opportunity to deduct expenses from these side gigs, which can be a huge benefit. Speak to your tax preparer to find out more.
These basic steps can go a long way to getting you ahead with your money. For more information on how you can take control of your financial future, check out www.myworthfinance.com.