Brainy Chick Finance

Financial Independence

3 Major Steps for Millennials to Take to Jumpstart Your Financial Future

3 Steps for Millennials to Jumpstart Financial Future

Just got a job or are starting a new one or maybe you know its time to take a serious look at your finances. But where do you start? There are three main buckets that should considered: Retirement, Savings, and Investing. These are multi-faceted buckets that can have a ton of complexity to them: read BORING. Here is the nitty-gritty of what you really need to know to jumpstart your financial future. 3 Steps for Millennials to Jumpstart Financial Future

 

 

 

 

 

 

 

Bucket One: Retirement

Pay yourself first by investing in your future aka retirement. This seems like far, far, far, far away, but just like how you remember your middle school days (dang that flew by!) you will want to start early to take advantage of this magical power of compounding (read: amazing way that your money adds up over the years). There are two main retirement vehicles you should take advantage of, the 401k and the Roth IRA.

  • 401K

The 401k is a retirement vehicle that allows you to save for retirement through your company. Some companies even offer a match to what you contribute – hello free money!! If for example, your company matches up to 5%, and if you contribute 5%, you are really contributing 10% to your 401k because the company is putting in money for you as well. Your company will automatically take the money from your paycheck so you don’t even see it leaving your account!

  • Roth IRA

The Roth IRA is an additional retirement account that you can open at pretty much any brokerage account from Charles Schwab (fancy, fancy) to those who just want to begin investing (Betterment or Wealthfront). You can contribute up to $5600 a year. If you choose the “Roth” version versus the “traditional” you get taxed now (typically in a lower income bracket) and your money grows tax free. Basically, whatever money is in the account when you retire and want to take a distribution (a chunk out), that money is yours – The Gov’t cant tax you again on it!

Bucket Two: Savings

Wait, I thought Retirement was savings. Yes –  that is true, but what you save for retirement is what you will live off of when you are older. Here, we are talking about some of items on your major Big Kid List. Traditionally, people like to to have some bigger savings goals for things like a:

  • House
  • Wedding

These tend to be 5-10 year horizons. I like to put this money into a brokerage account and invest it. WOAH, a what? Brokerage account: an investment account where you can buy stocks, bonds, mutual funds, index funds, etc. But I don’t know how to invest! Its okay, you can follow a Stock Market investment newsletter (like Motley Fool – my fav!) or invest in something you know (like Marvel, GE, Nike, etc), or if you want to distribute your money across the investing world, try a mutual fund (a group of stocks nicely wrapped in one) or an index fund.

Still a lot of work? Yes it can be. Not your forte but you still want to save? Try a Betterment account where you can set your goal and they will adjust as you get closer to your goal target date.

I like to keep my savings in investment accounts because you still have the opportunity to grow your money versus having it sit in a traditional savings account with little to no benefits.

There are of course smaller savings goals like building an emergency fund, a fun fund, or a travel fund. These can be funded in 1-2 years and should be replenished after it is drained.

Smaller savings

  • Emergency (3-6 months of expenses covered)
  • Fun Fund ($1k or more to spend however you WANT)
  • Travel ($1k-$2k if you want to travel internationally or $500-$750 if you want to travel across states)

Now say you have checked off all of the above items. Nice job! You doing more than 85% of your Millennial peers. The last bucket is how you can grow your wealth through investing.

 

Bucket Three: Investing

  • Growing your wealth

You can grow your wealth through investing in the stock market, in real estate, in business, in art, or collectables. You can even grow your wealth by investing in yourself. Get another degree or take some classes or join a work association. All of these investments could allow you to earn more, thus growing your wealth.

All of these are easier said than done, but half the battle is having the knowledge and the direction where to go. Its better late than never to start growing your financial future.

How to Save for Your F*ck Off Fund

In case you haven’t read, A Story of a Fuck Off Fund, you need to. It is about empowering women to have an account saved for any reason that she might need to leave a situation her life. If she doesn’t like her job, or be in a situation that could go bad, she doesn’t have to stay – she can leave and use her F*ck Off Fund to get out.

Every girl should have a F*ck Off Fund, and now you need to save for it. Some might use it as an emergency fund or view it similarly. I would recommend saving for 3-4 months worth of expenses for this fund.

Amount: 3-4months worth of expenses

The amount in the fund should cover the basics: rent, utilities, cell phone, student loan payments, etc.

Photo Credit: Tobedadiva
Photo Credit: Tobedadiva

Establish how much 3-4 months worth of expenses equates to

Do some quick budgeting and math to determine the number that you should need. Which bills do you NEED to pay every month? If you are rooming with someone and you needed to move out, how much would you need to live on your own?

Set up an account (only in your name)

I highly recommend setting up an account that only you can access that is easily accessible. The money needs to be easily transferrable, so don’t keep it in your one teller bank at home in the mid west.

Set a goal of the amount you will need and how long you want to achieve it

So say rent is $2000/mo that you split 50/50 making it $1000, bills are $200/mo, and additional payments is $150/mo. Your total would be $1350/mo. You need $1350 each month for, lets say 4 months, you would need $5400 in your F*ck Off Fund.

$1350 x 4 = $5400

You might be just starting out, so let’s say you have a year to build up this fund.

$5400/12mo = $450 a month that you should be setting aside in this account.

Tighten the budget or add some income

To fund this account, there are two roads to take: tighten the budget or get some side gigs. Maybe you cut out your $3 latte that you get 5x a week. That’s $60 a month that you can be adding into your fund.

You could look for side gigs to help close the gap – tutoring, be an Uber or Lyft driver or find odd jobs that your parents would pay you for.

Regardless, having a F*ck Off Fund is a great way to build your financial stability and flexibility. You do not need to have money impact your life decisions because now you have saved for it.

My Parents are Millionaires Next Door

Photo credit: houstonhousebuyers.com
Photo credit: houstonhousebuyers.com

My parents were the definition of being a “Millionaire Next Door”. For me, that means I grew up with a different personal finance foundation and saw money differently. I knew my parents had money but never knew how much because they did not spend on lavish things. If there was something we didn’t want anymore, my mom would recycle, reuse, or donate. We used coupons for food or discounts at retail stores.

Not only did I get the frugality from them, but I got a different financial view point. I knew what an umbrella policy was. I knew how to invest. I knew more about personal finance than most because while it wasn’t mainly talked about, the knowledge was skillfully infused. For example, my dad was in a multi-car accident and had shared that the guy who had caused the accident did not have car insurance. Because he did not have this (which most people have) they took pretty much everything he had to pay for the damages including his house! There are some good lessons to be learned here:

Lesson #1: Have car insurance

Lesson #2: Have an umbrella insurance policy (this covers you so that the insurance company does not take assets)

Lesson #3: Put your assets in a trust which allows your things to be “protected” from incidents like these. Your assets belong to the trust and not to you specifically, so lawyers, for example, cannot seize them.

Most people stop at lesson #1, but when you come from the “1%” you learn a little more about how to protect what you have. When I got my first job at 18, I knew right away to sign up for a 401k – why? Because that’s what my parents told me to do. Now, later in life, I see the true benefits for my retirement, but most don’t get that education. I had a Roth IRA before I was 20 and consistently contributed to it.

Even though my parents were the millionaire next door types, it doesn’t mean they weren’t partial to spending their money on things they liked. We have been a BMW household for almost 20 years, but it wasn’t about being flashy or have the nice new ride. It was about stability, longevity, and a good solid brand. Okay the BMW sleekness was nice too.

I have learned more in my twenty-something years of existence about personal finance than most got in much of their lifetime. While I continue to grow and learn about personal finance, I do have a different perspective and what some might call an “upper hand”, but I won’t let that put me down.

Most of which, I can attribute most of my financial success to my parents being millionaires next door.

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