Money Tips For Millennials (That They Don't Teach You In School)
What’s happening.
COVID-19 has torn through the globe, financial markets are tanking and people are losing jobs (including lots of my friends). I am seeing an overwhelming amount of young people posting on social media about how they have no money to pay their bills and their worries are understandable. But what’s shocking to me is how quickly they ran out of money. If their work hours were reduced or cut, within 1 - 2 days they are instantly screwed because they have no savings. This is bad.
Why I’m writing this.
If so many millennials can’t last half a week, it shows me they have seriously bad money habits that have left them in a tough spot. As a fellow millennial, I feel a strange sense of responsibility to share the money tips that have helped me so that other young people can organise their personal finances much better, and next time they won’t need to panic.
I’m not a financial advisor.
I’m not a financial advisor and I’m not telling you what to do — I’m just sharing the tips that have helped me. I’m not a guru, but I have been able to save six figures without any handouts (my parents aren’t rich). I’ve made, lost, invested and grown my personal finances in my youth, and from experience, I have some tips I think you’ll find useful.
5 Sections
I’ve broken this blog up into five sections.
Money Habits
Money habits you need to start and stop before you do anything else.
Saving Tips
Practical tips so you can keep more of what you earn.
Education
Books you must read if you want to understand money.
Investing
Some investing basics to get you started.
Increasing Income
How you can earn more money.
Money Habits
The first section of this blog is about developing money habits. If you aren’t financially secure in your mind, you’ll never be financially secure in real life.
Spend less than you earn.
Millennials need to stop flying so close to the edge. You need to spend less than you earn (and absolutely do NOT spend more than you earn by getting yourself into personal debt, that is f*cking crazy.). You shouldn’t be living pay check to pay check, but still spending money on luxuries. That’s not healthy, and it’s stressful. So if you make $70,000 a year, live as if you make $55,000.
Stop flexing.
We live in a world of social media and trying to impress others. I see so many people posting Instagram photos of them at expensive brunches, cocktail bars on weekends, fancy vacations to Bali, buying brand name clothes and all this other sh*t just to give the perception that their life is awesome.
This is literally sending you broke, and you probably don’t even get much joy out of half of these things. Because you’re not doing it for you, you just want people to think it’s cool. Focus on you and what makes you happy and make smarter choices so you can secure your future.
Track your spending.
I guarantee if you're not tracking your spending, you're spending more than you think. Everything adds up and if you track it, you can see how much money you waste and where you are wasting it. There’s a great app called PocketBook which syncs to your bank account and automatically tracks and organises transactions. Look at this once a month and see your spending habits. E.g you might spend $400 on Uber Eats in one month. Seeing how much you waste will inspire you to save.
Have an emergency fund.
This is more important now than ever. An emergency fund is 3 - 6 months of living expenses in savings, so if you lose your job you aren’t screwed. E.g if your basic living costs are $2000/m, you’ll want $6000 - $12,000. This pandemic is a perfect example of why you need this. I can’t tell you how less anxiety you will have knowing that even if sh*t hits the fan, you can weather the storm.
Use this down time wisely.
If you have lost your job or are forced into isolation, use this downtime wisely. Some of the same people who are complaining about losing their job, are now posting Instagram Stories of them drinking a 6 pack and binge watching movies. Do you realise this is why you’re in this situation in the first place?
Use this time to focus on you. Organise your finances, your career, your mental health, figure out how you can design your life so you don’t have to end up in a situation like this again. Look inward. If you’re just going to get drunk, watch Netflix and complain then to be honest… I have no sympathy for you.
Saving Tips
Here are some tips to help you keep more of what you earn.
Pay off debt first.
Pay off personal debt that is collecting interest as quickly as possible (talking about credit cards, not uni debt). There is no point saving money if you still have debt, because the debt interest is much higher than your savings interest. Let me explain… if your credit card debt is 10% and your savings are 2%, putting money into your savings instead of paying off debt is actually costing your money. If you have debt, put 100% of everything you can into that first, then start saving.
Don’t buy things you don’t need.
This is huge. Before you buy something, take 5 seconds to ask ‘do I really need this?’ If you want a new pair of shoes but you already have 10, do you need another? I’m not saying you should never buy yourself something nice every now and then, but skip the luxuries (excessive clothing, cocktails, five dollar coffees every day etc). if you’re trying to save, and especially if you don’t have your emergency fund yet!
It’s not what you earn, it’s what you save.
You can earn $200,000 a year and still be broke. In the same light, you can make $40,000 and still put money aside for savings. Increased spending often happens when people get a raise — they buy a car, new phone, new suit, rent a nicer apartment and all this other stuff because ‘they can afford it’. If you get a raise of $20,000 but spend another $20,000, you’re not any more secure.
This comes back to spending less than you earn. My income has steadily increased over the last 2 years, but my living expenses have stayed pretty much the same, allowing me to put all of that extra cash into savings and investments.
Set up separate accounts.
Setting up multiple bank accounts can help you stay more organised. If you’re an impulsive person you can use bank accounts where you physically can’t take the money out once it’s in there, which will force you to save. Using a ‘splurge’ account will also let you see how much money you have to enjoy guilt free, without going overboard. Here are some accounts you might set up:
Daily Expenses — Rent, groceries, basics etc.
Savings / Investing — Money for the long-term.
Emergency Fund — So you’re never totally screwed.
Splurge — For spoiling yourself and enjoying life.
Education
Okay this is what really matters. If you want to be financially secure (or if you want to be rich one day) then you must educate yourself. Here are a list of books you should buy and read as soon as possible.
Book: Rich Dad Poor Dad by Robert Kiyosaki
Considered the #1 personal finance book of all time. This book explodes the myth that you need to earn a high income to be rich and explains the difference between working for money and having your money work for you. This is the first book I recommend to people when they are asking to learn more about finance. It’s also short and told as a story, so it’s very easy to read.
Book: The Barefoot Investor by Scott Pape
This is a fantastic book for covering the basics, and it’s incredibly practical with step by step instructions. You’ll learn to save, increase income, manage your mortgage, find a financial advisor, investing basics and more. It’s targeted more to young families but it’s definitely worth a read to get you up and running. For simplicity’s sake it also doesn’t go deep into stocks or how to find/analyze investments (there are other books for that).
Book: Unshakeable by Tony Robbins
Market corrections (like what we are going through now) are inevitable. This gives you specific steps you can implement to protect your investments while maximizing wealth. After reading the Barefoot Investor you’ll like this one because it digs a bit deeper into the specifics of investing. The only negative is that it’s tailored to America so there are some elements that don’t apply here in Australia, but absolutely worth a read. Who doesn’t love Tony!
Book: The Richest Man In Babylon
A personal finance classic that has helped millions about thrift, financial planning, and personal wealth. This will teach you all about ‘paying yourself first’ and how you acquire, keep and earn more money. It’s also really short, it’s a quick and easy read that will only take you 2 - 3 sittings.
Tip: Basic Accounting & Paying Tax
Not a book but an important tip. This doesn’t apply if you have a job — but it’s worth knowing if you plan to start a business one day. If you’re an employee the order you pay tax is important. 1) Get paid. 2) Tax is paid automatically 3) You get what’s left for expenses. You also pay more tax as your income grows — 37% once you are paid over $90,000, and 45% when you hit $180,000 (which is crazy).
If you’re a company this is the order. 1) Get paid. 2) Pay business expenses. 3) Pay tax on what’s left. E.g if you make $150,000 and you have $60,000 of expenses, you only pay tax on $90,000 and not $150,000. You also pay a flat rate of 30%, regardless of how much your income grows. This makes a WORLD of difference.
Investing
Investing doesn’t need to be confusing or scary. You don’t need to be a wall street banker to generate wealth — I’ve tried to keep this as short as possible while still giving you some useful tips to get you started.
Invest money you won’t need for 5+ years.
Don’t invest if you might need the money in the next few months. If you are investing money that you can’t afford to lose or will need very soon, you risk being forced to sell at a loss because you need the cash. Also — don’t invest until you have your emergency fund saved up. Do that before investing anything, but you can certainly learn the basics in the meantime.
Your investment strategy.
There is no one-size-fits-all investment strategy. There are multiple things to consider: do you want cash flow, or do you want growth? Do you want returns quickly, or are you happy to wait? How much risk do you want to take? It all depends — but I’m writing this article for millennials who may not know and may not even want to know. So I’m going to give you an easy, low maintenance and very long term approach, because time is on your side.
Compounding interest.
I need to start here because if you’re young, this is literally your golden ticket to long term wealth. This is when you get interest on your interest. The sooner you start to save, the more you'll earn with compounding. For example:
You save $100 and get 10% interest. This totals $110.
Now you have $110 which gets 10% interest. This totals $121
Now you have $121 (and so on).
Just look at this fricken’ graph. If you’re 25 and you put away $500 a month, by the time you’re 55 this is $730,013! Click here to open the compound interest calculator and pop in your own numbers to see the power of compounding.
ETFs (Exchange Traded Funds)
The simplest, easiest, lowest maintenance way to build wealth. This is how you leverage compound interest by tracking a ‘market’ instead of an individual stock. It’s simply buying a ‘piece’ of a large pool of companies, instead of buying one company. For example, if you buy one share of the Vanguard Australian Shares Index ETF, you’re actually buying a piece of the top 300 companies in Australia combined.
This means you are instantly diversified, you pay extremely low fees (unlike paying a fund manager) and you reduce your risk. Not only that, 85% of fund managers fail to beat the index. You can beat 85 of experts by doing almost nothing!!!
Yes, it’s long term and boring and it won’t grow as quickly as individual stock-picking but that’s not your goal (and most people can’t do that successfully anyway). For a safe bet, check out Vanguard’s ETFs here.
Trading Platforms
How do you actually buy ETFs or stocks? You need a trading account. I personally use Commsec because it’s awesome (and based on other people’s opinions it’s definitely one of the best if not the best). You can setup an account here.
Great companies at great prices.
If you don’t have an interest in stocks, I’d recommend sticking to ETFs. But if you want to learn more, you can start researching individual stocks. My personal goal is to buy great companies at great prices (not trading speculative stocks based on their current price). Right now, huge Australian companies like Commonwealth, Woolworths, BHP and so many more are seriously undervalued because of the COVID-19 panic. I’ve been picking up bargains everywhere!
Yahoo Finance
Analysing and picking stocks requires a lot of research — if you’re interested in this check out the free Yahoo Finance app. It gives you instant insights into a company, their balance sheet, profitability — the works. I won’t go into stock analysis now because it’s far too long right now (and I’m also not an expert). Look up ‘fundamental stock analysis’ if you want to know more.
Dividend reinvestment plans.
When you buy shares, some of them pay dividends (giving you cash for owning a piece of the company). A reinvestment plan is where instead of getting cash, you get more shares. I recommend this because it will fuel your compounding growth even more. I won’t go into too much more detail here, just Google it.
Increasing Income
Saving is great — but you can’t get rich from saving. If you want more money you need to increase your income (then use saving habits to keep it, and investing to grow it. See how it’s all tying into each other?)
Commission Jobs
If you have a job that pays you $70k a year, that’s your ceiling (aside from the occasional pay rise which doesn’t happen often). And by the way, there is nothing wrong with working a regular job like that. But if you’re hungry and want to remove that ceiling to control your income, you can work in commission-based jobs like sales. You’ll start with a lower salary, but if you’re a high performer you can be paid really well. If I didn’t have my own company, I would choose a job like this.
Add Value & Solve Problems
If you want to increase your income, you need to increase your value. If you do a job that is very easy to do, you will be paid accordingly. If you learn high-value skills and figure out how to add value to people’s lives, you can get paid for that.
For example — every business needs a website, but they are very expensive to create and most of them are ugly. When I first started in marketing I learned to design beautiful sites at a far lower price point. This solved a problem, and added value to a business, then they paid me for it.
Learn More Skills
Learning high-income skills is the fastest way to make more money. Things like marketing, advertising, coding, design… there are so many in-demand skills. For me, it first started with DJ’ing, and I soon found out that DJ’s get paid whatever the venue is paying, not their age. So at 17 years old, I could make $50 - $70 an hour which was the same as a 30-year-old DJ.
I’ll just add here — learn skills that will be in demand for the future. With the growth of technology and artificial intelligence things like data analysis, coding, business strategy will be in very high demand, while others like travel agents, assistants, telemarketers and couriers won’t.
Job Vs Company
Learning skills is a great way to get started — but you only have so many hours in a day and you will eventually hit a limit. You will also be selling your hours for money — e.g when I stop DJ’ing, the money stops coming in. If you want to make more money and free yourself, you need to hire other people to do the work for you. I now have a team of 12 people who work even when I’m not. This is a different topic that I spoke about in my other article here.
Warren Buffet (the greatest investor of all time) famously says “if you don't find a way to make money while you sleep, you will work until you die.”