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5 Millennial Money Tips

There are a lot of conflicting reports in the media about millennials and their money, more specifically on their ability to build wealth compared to the generations before them.

A 2020 study by Bank of America found that 75% of millennials are not confident about their financial future, and one-third worry often about their finances with the top stressor being about not saving enough money.

Is that you?

Follow Thomas Rogerson’s 5 tips to help alleviate some of your money worries.

Thomas Rogerson, CFP® DipPFS,

Thomas Rogerson, CFP® DipPFS, Director Wealth Management at Pyrmont Wealth

1. Start Yesterday!

“Compound interest is the 8th wonder of the world.”

-Albert Einstein (Reputedly)

The good news for millennials is that time is on your side. With ages ranging from 25 to 40, you may have 25 to 40 years to retirement (ouch, I know).

The biggest mistake is thinking you can wait, when in fact, by waiting you miss out on the most powerful wealth-building tools available to you: Compounding.

Whether Albert Einstein coined the quote above is debatable, but the power of compounding is unquestionable.

If you were to save and invest $1,500/month from aged 30 at 8% interest, by 65 you would have accumulated a pot of around $3.4m. Taking inflation into account, this would be enough to provide you with around $60,000 per year income.

Starting just 5 years later would reduce your income to below $40,000 per year, and waiting 10 years to under $25,000 per year.

2. Have a Plan

Without a well thought out plan, you don’t know what your goals are.

  • What are you saving for?
  • How much do you need to save to achieve that goal?
  • Should you pay down your debts or invest into the markets?

Thinking about what you really want to achieve and working backwards provides direction and focus to your financial planning.

If you don’t know how much you should be saving, that’s where a financial planner comes in; they can help you figure out how much to save to reach your financial goals (perhaps lower than you think) and also help you with your investments.

3. Pay Yourself First

Now you know that you need to start, define what you’re saving for, and how much you need to save, make saving a priority.

Automate as much as you can. Set up monthly investments by direct debit or set up a standing order to your savings account if you’re building an emergency fund.

Once you’ve hit your savings target, the remainder you get to spend! This might force you to reconsider your spending habits until you make enough to cover your savings goals and your preferred lifestyle!

4. Diversify Your Investments

Diversification is the only free lunch in investing. The core majority of your investments should be allocated to a low-cost portfolio, spread out across the world and across different industries.

If you’re not a day-trader, don’t day trade stocks… Trying to time the market is a fools game.

5. Only Gamble What You Are Willing To Lose

If you want to invest into Cryptocurrency, NFTs, Single stocks etc, fine, but understand that the risks involved are large.

Any speculative, concentrated positions should form a small part of your portfolio with an amount which would not affect your long-term goals if you they were to lose.

Should You Use a Financial Planner to Help

If you’ve followed the steps above you should be good to go, so why hire help?

According to Vanguard, who are well known for catering to DIY investors, they concluded from a study that financial advisors may help increase returns by up to 3% per year.

Helping to keep you disciplined, focused on the long-term, and sticking to your long-term plan can add up to 1.5% per year.

The other 1.5% comes from the portfolio management, keeping costs low and ensuring the portfolio is properly diversified to capture market returns.

Most importantly, to make sure you make smart decisions with your money, and avoid foolish ones.

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