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Why Managing Your Budget Is Essential to Millennials: Plus Tips on How to Make It Easier

Raised during the most child-centric era of history, the self-confident aura that most millennials have is often mistaken for cockiness.

They are also often described as lazy, unmotivated, and self-entitled by older generations.

The very first members of the millennial cohort or generation Y were born in 1982. At least 3.7 million of them were born in the US in that year, setting the pace for what is the largest generation in stateside history. 

They, however, were born in a recession period and got into the labor market at the same time the US suffered the September 11 terrorist attacks. It has all been downhill from there. The Great Recession hit them hard, with the 2007 and 2008 market crash leaving most of them in the financial doldrums. 

Nevertheless, they are the generation determined to change the world. They have made the sharing economy a ‘thing’ spawning big businesses such as Uber and Airbnb. Millennials nevertheless are facing an existential crisis.

The system that brought wealth and prosperity to their grandparents and parents is breaking down fast. Career paths are no longer as clear as they used to be, and the job market is ultra-competitive.

What millennials spend their money on

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This generation no longer has the comfort of working their way up an industry as it was with the boomers. It is an era of unstable income and work hours, and most financial decisions made today will likely be upended tomorrow as technology makes its mark in the job market.

It does not come as a surprise then that besides retiring casual dining outlets, they also are not purchasing homes as other generations did at their age. A large population of them is already deeply in debt after college.

Data shows that this generation is singlehandedly responsible for one-third of the $3.6 trillion worth consumer debt that America owes. Generation Y collectively owes over $1.1 trillion, mostly in student debt form.

Within one American generation, student debt has doubled, but incomes have not caught up. Home mortgages have also risen in tandem with the debt burden, yet this generation earns approximately 20% less than what Baby Boomers did when they got into the job market.

The substantial education loan repayments are the most significant reason why millennials are not buying homes or vehicles as expected. They instead choose to car share, and when they move out of their parent’s house, they choose to live in trendy and urban neighborhoods, where they can use public transport or walk to work. The rent prices of these locations are, however, rising by the day.

They also have become very risk-averse, and only one in three Generation Y carries a credit card, a much lower figure than that of older generations. Over two-thirds of people in this generation also live from one paycheck to the other. 

As per a Schwab 2019 Modern Wealth Survey, over one-third of all US adults say that social media influence is increasingly dictating their spending needs. These people, therefore, live beyond their means due to the fear of missing out (FOMO). The generations most adversely impacted by social media envy are millennials and Generation Z.

Consequently, millennials generally spend $478 each month on non-essential purchases. This includes luxuries such as entertainment or dining out. They, for instance, spend more on expensive java that they do on retirement savings. At least 54% of them dine out with friends three or more times a week, and they also eat take out more than previous generations.

Financial analysts that one of the reasons why this age group impulse spends is because their financial lives are in disarray. Despite the overspending stemming from FOMO, it is only 38% of all millennials that claim financial stability.

How do you manage money effectively as a millennial?

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As dire as the financial environment is, there are millennials out there who are thriving and saving a lot of money for the future. At least one in every six millennials has over $100,000 in savings.

There are, however, those that have less than $1000 in savings, and some that have nothing saved for a rainy day. So, how can you manage your money better as a millennial?

Examine your spending

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You can build wealth either by spending less than what you earn or making more money. Saving money is, however, much easier than making more of it, in a shrinking job market. To save, you first need to carry out an audit of your expenses.

Journal your spending habits, then circle out every expense that is not a need. Find ways of cutting back the amount of money spent on these items. Every little cut will eventually save you hundreds of dollars that can be channeled to savings.

Tax yourself

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Ensure that a minimum of 10% to 20% of your earnings automatically goes to a savings account. Ensure that you stay consistent with the self-taxation rule, and soon you will have thousands in your savings account.

Send an automatic deposit to your IRA account

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Unlike the common perception that millennials are spendthrifts, data shows that over 42% of them have active retirement accounts. If you are in the gig economy or your workplace does not have a 401k plan, open an IRA account. Set up automatic deposits and think of it as an expense that has to be paid at the end of the month.

Invest

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Millennials have the advantage of being more tech-savvy than previous generations, and technology has increasingly made it easier for them to invest in diverse assets. There are apps out there built for easy stock market investing such as Robinhood.

There are also fintech firms with superb investment and lending programs for the debt-laden millennial and are all accessible from your smartphone.

Build a side hustle

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The net worth of millennials is indeed lagging behind that of the older generation’s young adults. The slow start to wealth building can, however, be speeded up with a side job.

Technology now makes it much easier to market your skills online, so take advantage of it. Use this secondary stream of income as an opportunity to save more. 

Tips on how millennials can save money

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  • Like every adult out there, you probably want to save enough cash for emergencies and retirement, but the suggestions given by most advisors can sound very bleak. Should you sacrifice every ounce of your social life so that you can save? Not necessarily, though, a thrifty mindset is key to savings. A much better way to save is to generate a budget then stick to it so that you can create a surplus.
  • Take advantage of bus or train coupons and cut down on the commuting costs, which often take the lion’s share of your budget. You can also begin to bike your way to work and keep fit, meaning that you can also do away with that expensive monthly gym fee charge.
  • Carry packed lunch to work. Prepare it the night before as part of your dinner and put it in a leak-proof lunch box. Use apps or visit coupon code listing websites and purchase bargain food items at a discount.  If you have to purchase your coffee, buy it at chains offering a discount. Bring your reusable cup along and save the planet while at it.
  • You can also have a social life on budget by visiting affordable venues like comedy clubs, art galleries, theatres, or museums. You can also apply for free tickets to radio, and TV shows live recordings for thrifty fun. Buy affordable booze at the supermarket and imbibe it from home before a night out to ensure that your bill is kept to a minimum.  

The hardships of the past few years have taught the millennial to be more creative with their earnings, careers, and lives. Generation Y has quickly learned the benefits of early savings, and as more of them take up the savings culture, the future could turn out better than imagined.



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Written by Richard Falkinburg

Richard is the financial manager of his personal life who uses couponing, promo codes, and financial literacy to better his environment. He enjoys helping others with My Promo Code a website where you can find promo codes on nearly everything.

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