Millennials: How to invest when you are on a tight budget
For most millennials, investing as soon as they get out of college is almost impossible. In their most recent survey, the National Association of Colleges and Employers found that for 10 broad degree categories ranging from engineering to communications, 2016 graduates are projected to have an average salary of $50,556.
For a college graduate, that is just beginning, that sounds exceptional. But with the rising cost of living, student loans, taxes, and just the basic essentials, many are lucky to have anything left over to be able to go out on a weekend. After the week is over, and you see your paycheck, you realize you need to start living paycheck to paycheck, month to month, where saving is going to be an extremely difficult task.
All in all, approximately 40% of millennial's don’t invest in the market because they don’t have an adequate income. Still worse, 50% say it’s too precarious to invest in the "market". Most have yet to embrace investing in stocks, bonds, mutual funds, or any type of vehicle to reach long-term goals like, you know, actually being able to retire. So how can you get over the fear of the market?
First things first, many Millennial's have never done, nor know how to do a budget or dissect their monthly cash flow. Every dollar you spend on Starbucks, every Uber called on weekends, and everything in between should be accounted for so you can see the flow of your money. You should look for choke points in your budget. Are you spending too much on a cable bill you barely watch? Are you spending more money on Uber every month then you think? How would you really know unless you build out a budget and see where your cash actually goes. How do you go about making a budget? You can head over to here and input the all your data to see how it looks.
Second. Start paying yourself for everything else. The book RichDad PoorDad focuses on this. Pay yourself before you pay any bills, and debts, or spend money on anything fun. specifically, Save 5% in an emergency fund and 5% in a retirement account to start. If possible save 10%. Before you do anything else with your paycheck make it's automatic. This will force you to budget yourself and work around your savings, as opposed to whats left after you spent your cash for the month. This most likely is your last priority, where you are hoping to hold some cash week over week, month over month, but what you are going to force yourself to do, is take your last priority, and make it your first.
Be accountable. Don’t be ashamed to ask a friend or family member that you look up to for help. Ask them to keep you accountable to keep you on the road to your long-term goals. When you are forced to be accountable for your actions, and in this way, your goals, you have a much greater chance of achieving them, especially when the person that is keeping you accountable is on your side.
Once you start pulling in more income, one of the biggest mistakes you can make is lifestyle creep. What is lifestyle creep? For example, let say your salary increased by $10,000, you most likely would like to buy a new car or get a larger place to live, maybe even the same size in a better area. This sounds great, right? Brand new car, GPS in the dash, nice new home to furnish, all fun. Wrong. Instead stay where you are for as long as you can, and use your raise to better yourself by saving 50% of the raise, applying 30% toward paying off debt and spending 20% on what you want. In the long run, at your age, it will be compounded that you can get out of debt quicker now, then let interest continue to erode your net worth. Debt is the killer of growing your assets.
At this point, actually, start investing money. The key to investing is to get into the market in a way you feel comfortable. If you want to keep it simple, you can invest in target date funds (Funds that change based on your age), index/exchange-traded funds(Funds that trade like stocks that are cost-effective), or even go the route of a robot advisor for your money to be professionally managed in a low-cost way. You can even hire a financial advisor if you want something more complex. The bottom line is you should be setting up a plan where you can automatically put money into an account every month.
This is a great way to start saving and investing when you are on a budget. If you want to dive in further, don't be afraid to give me a call at (718) 551 -7131. Investments in securities do not offer a fix rate of return. Principal, yield and/or share price will fluctuate with changes in market conditions and, when sold or redeemed, you may receive more or less than originally invested. No system or financial planning strategy can guarantee future results.