Millennials are in a good position to achieve financial freedom. There are more opportunities than ever to make a good living, live debt-free and earn financial success. There are mistakes to avoid along the way, too. These tips for achieving financial freedom will help you to make all the right money moves.
Avoid Debt
Debt is the enemy of financial freedom. While it’s true that it’s important to establish good credit, it’s also true that holding onto debt can lead to a lifetime of financial hardship. Some debt is unavoidable. Millennials may have student loan debt, for instance. But credit card debt is one of the worst to carry. Use credit cards only to buy things that you know you’ll be able to pay off on the first billing cycle. Don’t overextend yourself with debt and end up having to carry debt over months. Every payment you make will eat into your income and reduce your investing power.
Set Financial Goals
Be clear about your financial objectives. You should set both long-term and short-term financial goals. Long term objectives may include paying off a student loan or buying a house. Short term objectives may be buying a business wardrobe or building an emergency fund. Financial goals enable you to create a roadmap to future wealth. The first step to setting financial goals is to make a budget, so you will know exactly how much you can set aside for each goal.
Save 15% of Your Income
Every time you get paid, set aside about 15% of your net pay. Tuck it away into a savings account and don’t touch it. If you do this as early as possible in your earning career, you’ll have a robust nest egg when it comes time to retire. It may be hard to put away 15% each payday, but if you stick to the plan it will become a habit over time that will be easier and easier.
Have a Safety Net
With every generation comes financial catastrophes. From skyrocketing inflation to economic bubbles to recessions and depressions, there’s no telling what kind of financial crisis may befall your generation. It’s important to have a safety net in place to ride out the rocky times. A safety net can take the form of an emergency fund. At the very least, try to build up an emergency fund with six months’ worth of living expenses. This emergency fund should be relatively liquid, meaning you should be able to access it almost immediately without paying a hefty penalty for withdrawal.
Another kind of safety net to have is job security. For millennials, it’s more common to have a side gig at the same time as a primary job. If you’re laid off, the company goes under or you’re fired, you still want to have some kind of income to pay for essentials like food and gas for your vehicle. The side gig can be anything at all, and doesn’t have to be related to your professional skills. It only has to provide you a minimum amount of money to bridge the gap until you can find another well-paying primary job. The side gig will help you to avoid emptying out your emergency fund too fast.
Start Investing
There are more ways than ever to invest money. Choose one or more and start investing as soon as possible. Some investment vehicles, like REITs and stocks, require only a minimum of around $50 to $100. Anyone can afford to invest something each month. The earlier you start investing, the more interest you’ll earn and the more you’ll have to invest later on when bigger opportunities present themselves.
Educate Yourself
Financial literacy is also key to achieving financial freedom. Take the time to educate yourself about personal finance, investment strategies, and economic principles. Read books, take online courses or attend seminars to expand your knowledge and make informed decisions. Learn about the different ways to invest money. Read biographies and how-to books by and about successful people.
Avoid Frivolous Spending
As easy as it is to find ways to invest money, there are even more ways to waste money. Frivolous and useless purchases include digital tools and toys in games and apps. Coffee houses try to encourage you to spend your hard-earned money on overpriced coffee by making you believe in the status symbol. You won’t get rich by depriving yourself of a latte every day, but you will develop better spending habits by avoiding spending on things that have little value beyond instant gratification.
Pay Taxes
Financial freedom can be achieved without cheating Uncle Sam out of his cut. Be a good citizen and pay your taxes on time and in the correct amount. You can rely on the expertise of a quality CPA so that you’re neither overpaying nor underpaying the IRS. If you ever need to make a large purchase or borrow money to invest, you’ll be glad you have a clean record of tax returns and timely tax payments.
Avoid Lifestyle Inflation
As your income grows, it's tempting to increase your spending. However, avoiding lifestyle inflation by maintaining a modest lifestyle even as your earnings increase can significantly boost your savings and investment potential. Strive to live on your old salary whenever you get a raise or change jobs with an increase in wages. Put aside the extra money into an investment vehicle, and you’ll be financially free before you know it.
There are lots of ways to achieve financial freedom. The keys are to avoid debt, put money away into the right kinds of investment vehicles and avoid spending money that you don’t have. The earlier you start, the sooner you can find yourself free to take advantage of real investment opportunities that can set you up for a life free of financial worries.
by Kate Supino
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