Millennials face a specific set of financial challenges. Some of them have already been through a recession, and now persistent inflation, student debt and soaring rates are challenges that add to the lingering economic toll the pandemic has taken on their portfolios.
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Yet the generation also has specific financial steps they can take to ease their financial stress and plan for their future. Here are a few.
Stay out of debt
Millennials are racking up debt at an all-time high. Total balances stood at more than $3.8 trillion in the fourth quarter of 2022, a 27% increase from the end of 2019, according to the Wall Street Journal, citing Federal Reserve Bank data from New York. This not only represents the biggest jump of any age group, but it’s also the fastest rate of debt accumulation over a three-year period since the 2008 financial crisis, the Wall Street Journal reported. .
In turn, many experts agree that the smartest decision a millennial can make is to get out of debt and stay out of it.
“With interest rates on the rise and credit card interest rates around 20%, the cost of debt is stealing their future,” said Jay Zigmont, Ph.D., CFP, Founder from Childfree Wealth. “It is possible to live a debt-free life. Lock your credit cards now and stop taking on new debt. Focus on paying off your credit cards and consumer debt first. Once your debt is paid off, you can save and invest.
Life insurance
Another step millennials should consider is getting life insurance. While a good chunk of this generation has dependent children, owns a home and has a family income of over $100,000, 55% have no life insurance coverage at all, according to the Barometer study. 2022 Life Insurance Marketing and Research Association.
This exposes their loved ones to financial hardship if something happens to them.
There are several misconceptions millennials have around life insurance, such as cost and eligibility, but “generally, healthy young adults are most likely to not only be eligible for coverage , but also to be able to get the most affordable rates,” according to the LIMRA study. .
Business expert Tatiana Tsoir, CPA and founder of The Bold Blog recommends millennials look for life insurance policies with a conversion feature.
“Start with full-term life, get validated for health, and be 10, 20, 30 years old to move to full life,” Tsoir said. “Having the ability to convert a policy without additional underwriting is super amazing. I also add a long term care rider and sometimes a premium waiver so that if you become disabled the insurance company pays your premiums for you.
“Of course, life insurance is tailored to individual needs; but whether you have kids or not, being healthy, getting cheap coverage and having the ability to upgrade to whole life is the best of both worlds.
Create an emergency fund
There’s no better time than the present to build an emergency fund and anticipate life’s many upheavals.
“Millennials should focus on building their emergency funds, which should be able to cover potential stressful and costly financial surprises that life throws at you,” said Cassandra Rupp, senior financial advisor at Vanguard.
Rupp recommends setting aside $2,000 for expense shocks and 3-6 months of expenses for income shocks.
“Start building your emergency fund as soon as possible,” Rupp added. “Life is full of unexpected expenses and you have to be prepared for them. Whether it’s a medical emergency, layoff, or car repair, having an emergency fund will help you deal with those unexpected financial burdens without going into debt.
Budget for family planning
Many millennials are already parents, and for those planning to start or expand their family, it’s prudent to plan ahead for the extra expenses that come with a new family member, said Lena Haas, director, manager. wealth management advice and solutions. at Edward Jones.
“Particularly as childcare costs rise,” Haas said, “parents should be prepared to manage childcare expenses by taking advantage of public childcare assistance, putting side of pre-tax dollars in a flexible spending account for dependents and retaining child-caregivers.”
Another tip is to start contributing to a 529 plan, which is a state-sponsored college savings plan that can be used for college expenses.
“These plans are tax-efficient,” Haas said, “and the money paid into them can be invested, for example, in mutual funds and exchange-traded funds, to allow for potential growth over time. . The sooner you can start saving, the more time your investments have to grow. »
Travel smart
Nearly half of US millennials say they plan to spend more money on experiences like travel, as opposed to goods, in 2023 – compared to 37% of all respondents, according to the 2023 Trends Report American Express Travel’s global travel markets.
Additionally, 79% of millennials say they consider leisure travel an important budget priority, and 76% say they care more about creating a travel experience that best matches their expectations than cost.
Tsoir said millennials should plan to go somewhere every year, but on a budget.
“Travel broadens our horizons and gives us a lot of good emotions,” she said. “But never travel without a budget. You don’t want to take advantage of the trip to Spain and then pay for it for two years.
Tsoir recommends finding points or loyalty programs that can save you money, looking at different travel times to get it cheaper, and looking at options beyond hotels.
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This article originally appeared on GOBankingRates.com: 5 Smartest Money Moves for Millennials