1. Get on a written budget
Getting on a budget is your single greatest wealth builder. If you’re not on a budget you have no idea what you’re bringing in, putting out, and able to save. A budget allows you to track your expenses so you know where you can potentially cutback in order to save more. Saving more can be effortlessly at time with a proper budget.
2. Save for retirement and get your match
Saving for retirement is of the utmost importance for any Millennial. We Millennials have so much time on our side for the market to work in our favor. And by “time” I actually mean the power of compounding interest. Keep investing into the market regularly and watch your wealth grow. If your company offers a 401(k) match you absolutely must take advantage of this. Its free money! Contribute enough to get your full company match. If you feel you can still save more, you should open a Roth IRA. If you’re self-employed or your employer doesn’t offer a 401(k), open a Roth IRA and put the maximum annual contribution of $5,500 in it, spread-out over the course of the year via dollar cost averaging.
3. Pay yourself first
Whether you’re new at personal finance or have been doing it well for a while now, everyone has heard of paying yourself first. This is paramount in your attempt at becoming financially independent. Paying yourself first means taking your cut before paying anyone else. I suggest saving for retirement and an emergency fund (3-9 months’ worth of living expenses).
4. Live below your means
Learning to live below your means is perhaps the single hardest personal and behavioral finance tactic you’ll have to master. It’s not easy to live on less than you actually make, especially as you get older and begin getting promotions and making more money. This goes back to paying yourself first. If you live on well less than you make, that means you can save at least 15% of your income. You should be putting at least 12-15% of your income towards retirement. Then another 5-8% in your savings account/emergency fund. If your emergency fund is fully funded, keep putting that money towards retirement via a Roth IRA where your contributions are withdrawable (it’s like a pseudo-emergency fund).
5. Pay down your debt
Once you have begun saving for retirement, next you should put your remaining money towards paying off short-term, non-tax-deductible debt, e.g. credit cards and car loans. I would advise to at least save enough to get your company match for retirement. Then throw the rest of your income (after living expenses) towards your debt. Carrying credit card debt is your biggest barrier to becoming financially independent and accumulating wealth. And once your car is paid for – drive it for as long as possible. You’ll be amazed and how much money you can save when you don’t have a car payment.
6. Increase your savings rate yearly
Once you begin saving regularly for retirement, increasing your contribute rate is actually not that challenging at all. I would advise increasing your retirement contribution 1-2% each year. This is even easier if you get a raise. I personally have both a Roth and traditional 401(k) at work. For the last few years I have increased my contribution to each by 1%, netting me an increased savings rate of 2% each year. I also contribute to a Roth IRA. Once you start you can’t stop. You’ll be surprised and how you want to keep contributing more and more as time passes.
7. Do not try and keep up with the Joneses
In every stage of life we’re tempted with keeping up with those around us. We want to look successful. What better way than to project success of your friends, family and even those around you whom you’ve never met? Try a large suburban home, a luxury car, and expensive name-brand apparel and accessories. Regardless of your age, this is always an issue. When you’re in your 20’s you want to really look successful and buy a nice expensive car. Same thing happens when you’re in your 30’s and 40’s. It really never stops, but you have to try not comparing yourself to others. Stay the course. Save regularly for retirement and you’ll be much better off.
8. Continuing (financial) education
You are your single greatest investment. Always seek to further your education, personally and professionally. Not in finance? That’s fine. There are thousands of books, magazine articles, blogs, podcasts, and news shows out there to help your further your personal finance acumen. Same goes with your profession as well. Continue to read and learn about your trade so you can quickly advance in your field.
9. Set goals
Always set financial goals for yourself so you have something to strive for and achieve. I am a Millennial in my early 30’s. I really want to become financially independent in my 50’s and retire by age 60. That’s not going to be easy but it’s my goal. I check in on that often to make sure I am saving enough so my wife and I can do just that. I know how much we need in our retirement accounts in order to achieve this feat. We’re still nearly 30 years away from this date, so it gives me time to tinker and adjust where needed. I have a goal and I’m saving for it.
10. Pay down your mortgage
Once you are debt free except for the mortgage it’s time to tackle that house payment. This step isn’t until you are in a great place financially, meaning you have no debt and you’re maxing out your retirement accounts, e.g. 401(k) and Roth IRA.