For many Millennials, their financial future is filled with uncertainty. Faced with mounting student loan debt, rising housing costs, and employment challenges, their concerns are valid. While a majority of them have done a good job of saving money, many are falling behind. SEI is here to guide millennials with 8 tips to avoid debt in their future.
According to a 2020 survey done by Bank of America, 76% of millennials carry debt. Of those carrying debt, a large percentage have more than $50,000 of debt, excluding home loans. This causes them to feel like they are unable to achieve their goals and not be optimistic about the future.
The good news is millennials are demonstrating an ability to save. Roughly 80% of millennials in the survey reported a growing savings account. They are industrious, with many working second jobs to help fund their savings. Besides their savings habits, 39% improved their credit score.
For many, the trick will be to not add to their existing debt. 34% of millennials with student loan debt doubt they will be able to repay it. Even those over 30 carrying their student loan debt are worried about their ability to repay it.
The first part of staying out of debt begins with looking into options to refinance the student loan debt. The benefit of refinancing existing loans is reducing interest rates and payments. These reductions help provide breathing room to attack debt with current income levels.
If you are in a position where existing debt is manageable or there isn’t any, here are eight tips to help you manage or stay out of debt.
- Start a Zero-Based budget. A zero-based budget is one where your income less your expenses equals zero. The goal of this type of budget is to put you in control of your money by accounting for where every dollar goes. This will help you avoid debt in your future.
Assume you earn $4,000 a month. In a zero-based budget, you will add up all your savings, spending, and giving. This number should equal your income. If it is more, then you need to look for areas to cut back. If it is less, you can look for areas to invest in or give more.
- Create Shopping Lists. Going to the grocery store without a plan is a bad idea. Too often people will go to the store with the intent of getting one item but walk out with a full basket. This random spending kills budgets and adds up. If you are looking for an easy way to trim spending habits, use shopping lists. This tip will help you avoid debt.
- Track Spending. With the popularity of online banking, it is easy to ignore this tip. Instead of balancing the checkbook, many check their balance to see available funds.
The benefit of tracking spending is it helps one be accountable. Without tracking it is impossible to understand where the money goes each month. It is amazing how the Starbucks bill can add up over a month.
There are many apps out there to help with this aspect of finance. Try two or three until you find one that works for you. Then build the habit that each transaction gets logged into the app. Then compare your actual spending with your budget and see where the differences are. Remember, you can’t fix what you can’t track.
- Make It Hard To Buy Online. The goal of every online retailer is to make it easy for you to spend money with them. The simplicity of one-click ordering has made impulse purchasing way too easy. Having one or two more steps to complete the purchase gives some time to catch your breath before you buy. Sites like Amazon give you the ability to turn off one-click ordering.
- Turn Off Automatic Subscriptions. For many retailers or online apps, automatic subscriptions are a gold mine. Apps that have a small monthly subscription fee often go unused and end up costing hundreds of dollars. Every few months to go through your monthly subscriptions and see which ones you are using. If you haven’t used it in a while, cancel it.
- Set Up Credit Card Alerts. If you have credit cards, using spending alerts can be a huge benefit. Many card issuers have alerts if your balance reaches a certain point, or if a large transaction occurs. Check with your provider and see what alerts they provide. Set up limits for daily transactions or transaction limits. These alerts will allow you to think about the transaction and help curb impulse purchases.
- Turn off Email Alerts. Many retailers spend thousands of dollars sending great emails about their latest sales or promotions. These emails are well crafted and are enticing. Yet, they can be budget destroyers. Turning off these email alerts will help curb unnecessary spending and reduce the size of your inbox.
- Find an Accountability Partner. People are afraid to talk about money. Feelings of inadequacy or like you are the only ones keep people from discussing it. The truth is, many people struggle and it is okay to talk about it. This tip can help you avoid debt.
One of the best things to do is have an accountability partner. This person can help hold you accountable for your budget and spending habits. The point is, the more you talk about it, the more in control you will feel and the more success you will experience.
Getting or staying out of debt can be a challenge, but it isn’t impossible. It takes time, commitment, and patience. Being financially sound is an ever-evolving process that changes with every stage of life. But, the best time to start the process is now.
Contact a member services representative at SEI Credit Union to see how we can help you on your financial journey.