Broke Millennial

Reevaluate your fixed mindset about money

Most millennials are scared of money talk. It sounds like an absurd choice. Why get upset or anxious over such a vital element of life? Money has become a world religion, yet people discuss it in hushed voices or even consider it taboo. Do they want to conceal the fact that they lack financial competence? Money management can be overwhelming, and humans need to be more mindful of handling it.

Building a steady relationship with money means securing a rosy future. Content retirees sipping on their pina colada somewhere on the Mediterranean Sea — this could be you and your spouse. The dream may become a reality if you stop associating money management with perplexing numbers and bloodcurdling calculations. Yes, it involves a little math, but the core is a positive attitude and farsightedness when making decisions.

Financial perspectives are deeply rooted in childhood. Kids watch their parents when dealing with expenses, talking about earnings (or, on the contrary, cold-shouldering this topic), and granting them an allowance.

“People project their childhood experiences and lessons learned in their households on how they treat money personally and professionally”— Erin Lowry.

A vivid example is seeing parents having arguments over money. Such scenes may convince children that finances bring only negativity into relationships and require extreme caution. Another case would be living in a posh family and having no money concerns — therefore, no experience dealing with challenging situations. If a financial predicament occurs, it may catch young adults off guard. Take a moment to reflect on your past to determine which pattern you inherited — you will then identify vulnerable points and work on them.

This summary is a lucky strike if you are in your 20s and 30s. It will lead you through the basics of money management and transform your attitude toward budgeting. The earlier you get on the path to financial proficiency, the brighter your future will be.

Mastering the basics is essential for all progress

There are three archetypes of people when it comes to money management. The first group is called YOLOFOMO. It is the abbreviation for ‘You Only Live Once’ and ‘Fear Of Missing Out.’ These are chill people and fun to hang around. The prominent feature about them is that they couldn’t care less about money and live their lives as if tomorrow will never come. It most probably will, and then they will need to face the music—financial instability.

The name of the second group, Guarded Optimists, speaks for itself. They stay cheerful and upbeat — there is no need to rush; they’ll catch up with savings and retirement funds later. The clock is ticking, and what are the chances that the future will be as cloudless as the present?

You may refer to the third type of person as Dreaming About Retirement. For them, money is paramount. Therefore, they are frugal to the extreme of not indulging themselves with Friday drinks or a weekend trip to the seaside. Financial security is unquestionable; however, a little party never kills anybody.

You may represent one of these types of people, or you can be a mixture — there is no shame in that; you are on the right track if you want to master financial literacy.

Here are some basic notions to familiarize yourself with:

• Net worth — a straightforward calculation — you should subtract liabilities from assets. Remember to include valuable items you possess as your ‘assets.’ Liabilities are any debt you owe.

• Debt-to-income ratio — determines how much you are in the red (monthly debt divided by gross income per month).

• Emergency fund — a unique backup plan in case of hardships — whether your employer showed you the door or any damage happened to your property. This money should be good enough for three to six months of living, six to nine for freelancers. With this plan B, you have enough time to evaluate the situation, regroup, and move on.

• 401(k) plan — don’t forget about the autumn of life and apply for this program at your workplace. The standard procedure is to add part of your monthly salary to your retirement savings account.

“Your highest aspiration should be to secure retirement, and the savings process should start immediately”— Erin Lowry.

Establish your budgeting style

To become a money management ace, select the most suitable spending strategy. There are several options.

Go for cash — people perceive their credit or debit cards as magic wands. When the wizardry money vanishes, they wonder where it has gone. With cash, you can track your flow and pay attention to your expenses. After all, giving out banknotes is more heart-wrenching than paying with a card; this unpleasant experience may hold you back from overspending.

Record every cent you pay — allocate time daily to track all your transactions. Soon, you will notice spending preferences and how they influence your wallet.

Contemplating expenses, consumerism, and the actual value of things is more of a brain exercise. You can download apps to monitor your progress.

“Consider rebooting your financial life in the same way you promise yourself to refresh your body every January first”—Erin Lowry.

In the envelope system, create a plan with the monthly sections you must pay for (rent, student loan, groceries, etc.) and divide your income accordingly. Assign these sums to specific envelopes, whether physical or digital. You cannot take money for one section from another — that’s tricky. Create a separate envelope for a just-in-case fund to not end up penniless.

The percentage system—This method involves dividing your money into three spheres: fixed expenses such as rent or other monthly essentials (50 percent), money put aside for savings (20 percent), and funds for your wishes and cravings (30 percent). You may adjust the system to correlate with your income.

The zero-sum system is a whole new level of budget organizing. The core idea is to utilize last month’s funds to pay bills and credit for the next month. It sounds like a utopia, but the concept is feasible. You eliminate unnecessary and trivial purchases and appoint each dollar to contribute to your budget.

“By setting up a budget strategy and analyzing your spending habits, you move away from living paycheck to paycheck and closer to being financially stable”— Erin Lowry.

Choose your bank wisely—you’ll enjoy the benefits in the future

What is the main criterion when choosing a bank for your accounts? Is it reputation or credibility? Most of the time, people prefer the financial institutions their parents, relatives, or friends use. It seems like a sound choice, but have you ever wondered about all the potential pitfalls you may encounter? How dependable is your bank?

The primary benchmark for banks is FDIC insurance. It is a firm guarantee that you will be able to get your funds back if the bank becomes insolvent. This insurance covers savings and deposits, except for investments. It’s better to be safe than sorry, so stick with the bank with FDIC.

Most people disregard excessive fees for owning a bank account. They have different natures — overdraft fees, monthly and annual maintenance, activation fees, etc. They are pointless, so feel free to get rid of them — many online banking systems offer fee-free services, so check the countless alternatives on the Internet.

Another reason you should consider switching to online banking is APY — annual percentage yield. In short, it is the interest you get from the bank for your deposits. The funds you store in your account are circulating — a chunk of them is in someone’s loan or mortgage. For this, the bank grants you 0.01 percent APY — a meager rate and one of the most common scenarios. Here come online banks to the rescue!

Their offer is 1 percent, which is considerably better.

“Even when deposited, consider your money an employee that can bring you income”—Erin Lowry.

Owning a credit card with a reward system may be helpful. It has benefits — the cash you receive back on purchases and free flights and hotels. At the same time, it may take some effort to resist the lure of spending for the sake of these perks. So either you have a conscientious and cautious personality or stay away from these sweeteners.

Did you happen to know? According to statistics, financial institutions received 11.6 billion dollars from overdraft and non-sufficient funds (NSF) fees in 2015.

A strong credit score unlocks the best offers available

No matter how affluent you are, the wind may change direction one day, and you may desperately need funds. However, getting a loan is not child’s play — you have to prove trustworthy, diligent, and able to pay on time. Potential lenders can find such information by examining credit reports and scores.

How do these two notions differ? The report records your interactions with money and how you deal with your credit card debts. This information has a direct impact on your score. Credit scores range from 850 (the top and the most excellent indicator) to 300 (no chances here). Try to get into the 700+ zone, and you’ll find it easier to secure a low-interest loan.

No debts in your name can affect your score; the same happens when multiple loans flood your account. Find a happy medium — devote your full attention to a few active credit cards or debts. It will demonstrate to lenders that you are reliable and take your credit seriously.

“You must follow the golden rule—don’t miss the payment deadline, and try to pay in full”—Erin Lowry.

Implement this life hack to outsmart the banks. Whenever you get your monthly statement, attempt to pay above the minimum due. You may not know that the banks charge interest on your remaining balance. The more you refrain from paying (or you invest only the minimum due), the more significant the amount is. Over time, you might catch yourself feeling like the debt never diminishes.

The worst nightmare is debt collection. People usually think of collectors as demons coming for their souls. They buy your debt from a previous lender and arrive at your door, terrorizing you into immediate payment. Undoubtedly, debt collection is a bad mark on your credit history, and collectors seem harsh, but it is not doomsday. If you spot abusive behavior toward you, you have the right to inform the Consumer Financial Protection Bureau. As for your credit history, the collection record will only haunt you for seven years; after that, they will erase it from your report.

Take control of your debt and turn it into a powerful winning strategy

Don’t be ashamed if you have credit card debt. The culture of consumerism dictates that people constantly spend funds; to lose control is human. The liabilities should be a wake-up call so one can reflect on which products and services are worth buying. To lift this burden off your shoulders, check out these techniques:

Debt avalanche — this approach includes prioritizing the debts with the highest interest. Create a list of bills you need to pay and distribute the money to pay off, but the extra should go to top-interest liabilities. In such a manner, you save up on APR — annual percentage rate.

Debt snowball — a time-effective method. This method is reversed from the previous technique so that you prioritize smaller debts and pay them off quickly. You will be super motivated as soon as the amount of credit dwindles.

Bank Transfer — take advantage of this option to eliminate the interest on your debt. Switch between different financial institutions and move your credit to the one that offers 0 percent APR for a certain period. It may sound suspicious, but how does another bank benefit from your non-interest debt?

“The primary aim of any bank is to get you to stay with them; they hope you get stuck in debt for as long as possible”—Erin Lowry.

Think carefully before deciding, and be aware that your ‘no interest’ privilege expires after some time.

Personal loan — combine your debts into one and build a plan to tackle it; it can be two years, five, or seven. The lender can charge lower interest if you have a favorable credit score. Avoid loan companies that offer fees, prepayment penalties, or any insurance.

The things to look out for are payday and title loans. These are the hidden menaces of the financial world. They are short-term but carry huge risks — including a very low probability that you will pay them off on time. With title loans, they may even confiscate your car, which is undoubtedly a painful experience.

People miss deadlines for eighty percent of payday loans.

A student loan is an essential foundational lesson in financial literacy

Student loans are a ‘unique’ opportunity to learn how to tackle debt at a very young age. You are betwixt and between— still childish and youthful. Yet, you must carry a heavy load throughout the studying process (and even afterward). Of course, it brings anxiety and frustration. Lucky are those with parents on their side willing to lend a helping hand with finances. Some people do not have such privileges. As a student, your primary goal should be facilitating payment as much as possible.

Suppose you are uncertain about which type of loan to choose — select federal (as opposed to a personal one). The former offers a wide variety of perks, provided you use them wisely, and paying off the debt can be a piece of cake.

Here are the merits of governmental programs:

• Loan subsidizing — if you attempt to pay off the debt while still in college, the interest on your balance won’t build up.

• Payment delays (in other words, deferment or forbearance) — the difference between these two notions is that once you delay the loan using deferment, your interest won’t accrue. The same wouldn’t happen with forbearance.

• Grace period — before making the first deposit (which can last up to six months), you can find a job or paid internship.
• Income-driven repayment plan — the amount of monthly payments on a loan is based on your earnings.

• Forgiveness — the federal loan can also be forgiven after some time if you agree to work in public services.

Personal student loans are harsher; they have few benefits. Also, lenders are rarely sympathetic to students. Research how to accumulate extra funds — get a summer or part-time job, tutoring, or internship.

“Stick to the main principle of being financially literate — do not postpone your debt until you are well-to-do; fight it whenever you can, whatever amount”— Erin Lowry.

Be direct and open when discussing money with those around you

Everybody has a different attitude toward money. Even though you can be a master of financial literacy or a responsible consumer — your philosophy might misalign with how other people treat capital. By these people, you can think of your friends, colleagues, or significant others. And since money is a sensitive topic, how does one break the ice?

When it comes to going out with friends, choose to be honest. Tell your friends if the cafe or restaurant is too luxurious and you cannot afford it. Having different values for money will not be a bone of contention.

“Real friends like you for who you are, not for how much money you splurge on fancy items.”—Erin Lowry

Grow some confidence and say ‘no’ — it’s high time you lose the title of a people pleaser and focus on what matters to you. Listen to your gut if you feel your money belongs elsewhere rather than at an elegant restaurant or wedding.

“Your money should work as a tool to get what you want, so don’t let your friends spend your money for you”—Erin Lowry.

Money can bring awkwardness to the relationship between two lovers. Still, you must discuss it — especially if you are determined to tie the knot. Don’t be afraid to get intimate on this one. Exchanging views on money can help to reveal new sides of your personality. Your partner’s interaction with debts and credit can indicate how trustworthy they are and how seriously they take their responsibilities. It does not mean you should break up with someone just because they are in red— but you will have food for thought.

Keeping secrets about money situations breeds mutual distrust. If you are heavily considering getting married, get ready to unveil each detail—from debts and loans to emergency funds and credit scores. An excellent idea would be to share plans for the future, your dreams and goals, and how you will distribute funds. The key to success is to be nonjudgmental and understanding—it is a new way to bond with each other.

Conclusion

The quote always in the air is that “money cannot buy happiness.” To a certain extent, it is true. You cannot evaluate your quality of life based on the amount of money you possess or judge people by their salary. Non-material things, like love, welfare, or friendship, are free; enjoy them fully. Money is a great mentor; it can teach you a valuable lesson — how to be independent, gain control over your life, and rise to challenges.

Stop treating money like a survival kit. Stop living paycheck by paycheck, only having vacations once in a blue moon, and expecting very little from the future. It is a life with no insurance or guarantees. Instead, employ your earnings and make them work hard and efficiently for you, whether you invest or pay debts. It is your instrument for a comfortable life and for obtaining opportunities. Keep the essentials in mind — your money for retirement and an emergency fund. These are must-haves; you may sigh with relief only after receiving them.

Attempt this

Start by transforming your mindset about money management. Take the time to analyze your spending habits carefully—this is crucial for achieving financial stability. Consider downloading budgeting applications that offer interactive dashboards and detailed analyses of your expenditures. As you explore these insights, you will likely uncover which purchases are draining your resources unnecessarily. Identifying and eliminating these detrimental habits is the first step toward financial wellness.

Always aim to adopt the principle of spending less than you earn. Set a realistic budget that reflects your actual financial situation, and you’ll soon find that the weight of debt becomes far more manageable. By consistently adhering to this new approach, you will be astonished at how much your financial landscape can improve over a year. Embrace these changes, and watch your financial health blossom.