Updated: Aug 17
Earlier this week I had a phone call with a millennial. The timing couldn’t have been more perfect because I had millennials on my mind. You see, I have been working on a webinar series on the topic of Financial Wellness, which is being piloted through the National Center of Employee Ownership (NCEO). The second week of this series is directed to millennials, particularly how to achieve financial independence through avoiding common mistakes and what habits they should be building instead.
Mel the Millennial* had reached out to me via Calendly, setting up a time to talk with me and ask for advice [ You can too! Get started by booking a session through Calendly. ]
Mel* is 26 years old. He graduated college in 2017, then moved to sunny Orlando, Florida. He worked a series of jobs ranging from coaching youth sports to selling cars, and filled spare time by doing part-time work in the gig economy.
Mel recently moved back to central Illinois. He is currently working full-time as a patient representative in healthcare. It is his first office job, and he enjoys the people he works with as well as helping the patients and clinicians each day. He also has a second job doing property management part-time for a local church, and he is working towards becoming a certified health coach.
Mel shares that he enjoys keeping busy when not spending time with family. I am very impressed with his work ethic and positive attitude, and reiterate having a positive mindset at work can lead to success.
He wanted to learn more about investing.
Mel was researching investment options and wasn’t sure whom he could trust on YouTube. Learning about real estate, stocks and savings were on his mind. He was hungry for knowledge. A friend had provided him with a ‘simulator’. When I asked what kind, I learned it was a day trading tool for stocks. I explained that I do not day trade stocks, but instead educate folks about sound financial practices to balance today’s needs with building for a future. I offered to suggest books and websites to read and that we could meet over coffee to discuss what he learned. He was open to this opportunity.
"I educate folks about sound financial practices to balance today’s needs with building for a future." Peter Newman
In my experience, folks who are plagued by financial stress in their early 30’s typically have four common issues:
Spending more than they make and increasing (rather than decreasing) credit card debt
Having no emergency savings or shock absorber
Paying off student loans early
Not investing in company retirement plan with a match
I asked Mel a couple of questions to gain perspective of where he might be currently with his financial wellness, and how I may guide him.
Make progress towards paying down debt while keeping monthly income greater than expenses.
I learned this young man had little debt, roughly $400, and is on schedule to have the debt paid off within the next four weeks. Mel shared with me that he had a lot more debt when he moved back to Central Illinois but that he had been prioritizing getting rid of the debt during the past 18 months.
Aim to grow emergency savings equal to six months of living expense.
Mel has been stashing away $25 each paycheck in savings. With a current emergency savings of ~$350, he intends to increase his regular savings contributions once his debt is repaid. Once he has six months of pay saved, Mel can shift from putting money into a savings account to longer term and higher returning investments.
Keep student loan payments low and take advantage of compounding interest by adding to savings each month.
Mel’s only remaining debt will soon be student loans on an income based repayment plan. He had made a significant investment in his college education, but he had done it intelligently by spending two years at a less expensive junior college before transferring to a four year school. He acknowledged that he may have those loans for a long time.
Mel recognized that paying off debt reduced his recurring expenses and would enable him to save more at the end of each month. Whether saving $50,000 for a home down payment, $2,000 to move apartments, or $6,000 for an emergency fund, your income must exceed your expenses to achieve financial goals and make progress toward independence.
Mel had the mindset that he should build up savings to act as a shock-absorber for life. Having funds available for emergencies (like a car repair) or a desire to move apartments, requires thoughtful planning. By getting out of debt and adding more to his savings account each month, he was practicing a pay yourself first mindset. This mindset is essential to achieve financial independence and reduce stress/anxiety around money.
When we get together for coffee, I will be asking Mel whether he is eligible to participate in his workplace’s 401(k) retirement plan. If so, I will encourage him to take advantage of this, particularly if there is a company match available. I will also be curious about his other goals, such as whether he wants to save for an apartment or home, or funds to start a small business.
Do you have a millennial in your life that could use financial guidance? Sit down with him or her, and have a frank talk about these four financial mistakes today. Their future self will be grateful.
*Mel is a real person, but his name has been changed for privacy reasons.
Are you comfortable with your progress towards retirement? How about helping future generations meet their financial goals? If you have more than $2 million saved and need help towards securing financial wellness, the Peak Wealth Planning team can assist.
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About the Author
Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind.
Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.