budgeting questions for millennials


So you’ve graduated from college, landed your first “real job,” and have maybe even found that special someone to spend the rest of your life with. Your idea of balancing a budget up to this point looked something like a teeter-totter with beer filling one seat and a large pile of ramen noodles on the other. While your discretionary income has likely grown, you may still be trapped in that college budgeting mindset. It’s time to grow-up Peter Pan, start living with an eye for the future, and purpose behind your actions. Believe it or not, within a few years you and your peers will have collective buying strength that rivals that of present-day baby boomers. Let’s take a look at some basic questions you need to start asking, and some tips to get your financial train rolling down the track.

  1. Where do I start? As simple as it sounds, talk to your parents. Embrace the relationship you have with them. Millennials have a uniquely strong bond with their parents compared to generations before. Likewise, parents are very inclined to help with major life and financial decisions. The same people who brought you into this world have a natural inclination to help you navigate it. They’ve likely made some strong financial decisions in the past that got them where they are, but on the other hand, they have probably also made some very poor decisions, which they’d like to help you avoid. Ask them how they got started, what they would have done differently, and who they go to for financial advice.
  2. My dad thinks he’s Warren Buffet, and my mom thinks she’s Suze Orman…they are not; next tip, please. If your parents are not the role models you’re looking for, reach out to a CFP® (Certified Financial Planner). The CFP® designation is a standard in the financial industry and means the advisor must give advice that’s always in the client’s best interest. By and large, these professionals are in the industry for the right reasons; they want to help people accomplish their financial goals. Financial advisors aren’t just for the wealthy. Since you are just now starting off in the financial world of being an adult, having an advisor shouldn’t be that expensive. If you commit to your future, the right advisor will reciprocate with some pro-bono work to get you started. Be respectful of their time and show how much you value their advice. You’ll be surprised how far it will go.  
  3. How important is a budget, and why does everyone always suggest one? A budget is critical to your success. I’m not suggesting you keep track of every penny, but you need to have a strong understanding of your inflows and outflows. Make sure your fixed expenses such as taxes, rent/mortgage payments, student loan payments, insurance premiums, utilities, etc. are less than your income inflow. Any surplus should be split between savings and your variable expenses. Get accustomed to saving early. If you are prone to forgetting putting money in savings, set up your account to automatically transfer money into your savings with every paycheck. How much you need to save will be based on your goals and objectives. I often find those who start saving a fixed percentage of their income from the start never miss the extra cash that would otherwise be available for entertainment and leisure.
    • Also, remember that most debt is bad, and credit card debt is the worst. It is like quicksand. If you have a good job and still relying on credit cards to make ends meet, stop it. Also, credit card debt will make saving much harder.
  1. When should I stop renting and buy a home? We suggest buying a home when you are ready. If you are not sure if your job will take you to a new city, or if you enjoy the flexibility of renting, the obvious answer is rent. If you’d like to own but do not have the necessary down payment saved or the surplus monthly cash flow to cover all the wonderful expenses associated with ownership (property taxes, insurance costs, utilities), the answer once again is rent. I also advise clients against buying if they do not have an established emergency fund of 3-6 months worth of expenses. With all that being said, I am an advocate of home ownership and the equity that can be built over long-term.
  2. I know very little about investing, where do I start? The likely answer is inside your company-sponsored retirement plan. For some of you, you may already be participating without knowing it. Some retirement plan contributions are mandatory, others are elective. Either way, there are resources available to you through the plan provider. Utilize any online tools you have access to or schedule a meeting with the advisor associated with the plan. The advisor is there to educate you, not sell you products. Take advantage of their knowledge. If you are participating in your company’s retirement plan, make sure you are contributing enough to get the full match. This is a great way to double your money instantly! If you would like to know more about 401(k) plans, check out our article on a Roth 401(k).

It might be surprising to hear, but financial enlightenment is actually quite empowering. Although you may not be able to afford everything you desire immediately, at least you’ll be doing everything you can to keep your financial train ride from becoming a financial train wreck. If you’re in need of a conductor, please contact one of our Certified Financial Planners to get started today.