This year, millennials are in the age of mid-20s to early 40s. At this productive age, they are now saving for their first house, establishing a business, growing their career, and starting families. They are at the stage of a journey to achieve their life goals which must be assisted with money management. Besides, millennials must accept that they live in an era where the pandemic hit the economy, and everybody has to struggle financially.
The unprecedented event has made millennials realize the importance of budgeting management and financial literacy. A 2021 TIAA Institute-GFLEC Personal Finance Index survey indicated that individuals who begin their adulthood have low financial literacy, as it increases over time, their financial literacy tends to remain low.
As a young adult, it is the best time to start equipping millenials with personal finance knowledge and understanding of how to set financial goals- such as having an emergency fund, controlling expenses, and planning retirement. Those who start saving now have plenty of time to build the assets they’ll need later.
Here are 8 pieces of financial advice for millennials to achieve their financial goals
Invest in yourself
Many people think that wealth is built only through money management. In fact, money management is not the only factor in being wealthy. Management of other sorts of capital, namely the education, training, skills, and experience that someone brings to the workplace, is just as important as money management.
The ability to trade human capital for goods and increase earnings over the lifetime is essential to financial success. There is no more profitable investment than investing in yourself because the result is more predictable than any other capital. It is an initial capital to advance on other returns.
Set money goals
Set up your financial goals to sort your financial priorities. Write down where you want to be financially and what your priorities are given the timeframe and dollar amount for each. Setting financial goals helps you focus on managing your money and life. The financial goals could be short or long-term, small or large, provided they are achievable. Otherwise, your goals will never happen.
Budget wisely
Controlling your expenses is one way to get your budgeting on track. Before creating a budget, you must calculate your income and expenses. You can have any budgeting rule on your own. The most common budgeting rule is the one that Elizabeth Warren introduced, called the 50/30/20 budgeting rule. Of course, this is not a solid standard for everyone, but when you create the budget on your own, make sure you have the budget for your needs, wants, and savings.
Build an emergency fund
Nobody knows when the emergency event will happen. Once it happens, it could ruin your finance unless you have prepared for it. Building an emergency fund should be a priority for every young adult. As a general rule of thumb, you should have at least 6 months worth of expenses to be set aside as an emergency fund. The number might increase if you have a family or any dependents. Emergency fund functions as a financial buffer for your finance when unexpected things happen.
Save for your retirement
Although retirement is not the primary concern now, it is the perfect time to start investing. Saving for retirement is not just the amount you have to invest but also the length of time you need to invest. Retirement saving is one of the long-term investment goals that you must have on your list. The earlier you start, the more you can put in to ensure a comfortable retirement.
Avoid bad debts
Overspending and borrowing money without the intention to repay it is a key to the bad debt trap. Not all debts are bad, there are good debts if you put yourself in the right situation. If a debt is unnecessary or simply unaffordable, consider whether it is worthwhile for you to take it. Think before you agree to take any debt. Is it really necessary? What’s my plan to repay the debt? Is there a more affordable option that makes more sense to me?
Ask these questions to yourself, stick to your budget, and don’t borrow more than you can afford to repay over time; then, you will be in a better financial position and less likely to have a bad debt issue.
Invest in good business using dollar cost averaging
If you don’t have time to be an active trader or investor, you can use small regular savings to invest wisely in publicly listed stocks for the long term. This strategy is called dollar cost averaging. This way, you will have a better chance to earn 10% yearly. One of the best ways to invest is through value investing; you invest in a portfolio of good quality stocks when selling at a fair or cheap price. The challenge is finding a good business and determining if it sells cheap. However, it is not difficult to acquire knowledge nowadays as there are many sources you can learn from. Again, this involves an investment in yourself too!
If it sounds too good to be true, it is!
There is no shortcut to building wealth. Don’t be tempted by unreasonably high-profit offers. Just delete off if you received a message that you won a $100,000 reward out of the blue. Be aware when someone wants to help you to buy a certain stock which will double or triple within a short time. Never buy a stock touted by anybody before doing thorough research yourself. Additionally, avoid FOMO (fear of missing out) in your investment, as this could backfire on your money.
As a youth, it is essential to plan your finances. Spend wisely, manage your budgeting, prepare for retirement and unexpected expenses, and avoid the financial pitfalls that can destroy your savings. The only way to invest wisely and safely is to build long-term wealth with some well-tested investment knowledge and strategies. Sometimes managing money is like exploring the jungle. You might get lost, and nobody can help you except yourself. Therefore, being financially literate is the best investment you can start with.
Investing in a halal stock might be challenging as you have to screen the company’s financial reports to check its Shariah-compliant status. Musaffa has made it easier for you to check the halal status of the stock. You can start your halal investment journey by subscribing to Musaffa Halal Stock Screener.
Visit Musaffa Academy to read more articles about halal investment and Islamic finance.