Millennials have received a bad reputation for being irresponsible, especially with their financial decisions. A number of them are starting to change their financial habits to break this stereotype.
If you are a young adult trying to get on better financial footing, you should follow the tips listed below.
Pay down your higher interest rate debt first
Many young adults are preoccupied with their student loans. Many young adults want to pay their student loans off as quickly as possible. This is understandable, since the average graduate owes $30,100 in student loans.
In general, this is a good idea. However, many of these people have other debts with higher interest rates. On average, the interest rate on credit cards is three times as high as those on student loans. It is smarter to pay off the more expensive debts first.
Refinance your debt
Refinancing your debt is a good way to cut your monthly expenses. This is especially true for millennials that took out large student loans with high interest rates. Refinancing their student loans could be a good way to cut their monthly expenses considerably.
Transferring your credit card debt to a new card with a lower APR is also a good option. If you have a large credit card debt, this could be the best way to stabilize your finances.
Commuting from an area with a low cost of living
Many millennials prefer living in large, urban communities where they can enjoy the nightlife and have a short commute to work. The appeal of this is understandable, but it can be a very costly decision.
In many faster growing cities, the average rent on a one-bedroom apartment is $1,500 a month. The rent for places in bedroom communities half an hour away is often less than half that price. If you are willing to commute further, you can save even more. One of my old friends used to commute from mother’s house in Sonoma county, California to her job in San Francisco. This hour-long commute saved her over $2,500 a month on rent!
Max out your IRA
Many millennials are primarily focused on the immediate present. They tend to procrastinate when it comes to paying for retirement. It may feel like retirement is light years away, but it will reach you faster than you expect. You don’t want to discover that you don’t have enough money in your retirement account to get by.
You can put up to $5,500 a month in your retirement account without having to pay taxes on it. Try to take advantage of this while you are young, so you won’t need to put nearly as much aside when you are in your 30s and 40s. You will be surprised by how quickly your nest egg will grow.
Consider moving in with your parents to save money for your own house
Many young adults have trouble affording to purchase their own house. This is due to a variety of factors, including stagnant wages and rising housing costs.
Living with your parents for a year or so can be a good way to save up money to buy your own place. You will be surprised how quickly can save money when you don’t have to pay so much money for rent.
Create a sensible budget and stick to it
Having a budget is very important. This may sound obvious, but you’ll be surprised by how many people don’t have a budget. The number of people that actually stick to their budget is even smaller.
Make sure that your budget is frugal enough for you to save money, but not so frugal that you will give up on it entirely. It is important to budget for recreational and discretionary purchases once in a while. This will make it seem more bearable, so you will follow through.
