Broke Millennial - Stop Scraping by and get your financial...
Broke Millennial - Stop Scraping by and get your Financial life back.
Broke Millennial, let’s get your financial life together
This summary isn’t a boring lecture on the money. It’s more like a financial roadmap that covers various paths you can take to go from flat broke to financial badass and gives you the tools and information to get there. Whether you read it chronologically or flip through at random, each chapter will give you actionable advice on how to improve and further strengthen your relationship with money.
The first few chapters lay the foundation for you to embark on your journey toward building a healthy financial life. The chapters will help you determine what your approach is toward money and what psychological blocks or pitfalls may surround it for you, as well as show you how to assess your financial know-how and improve it.
Many of the chapters address sticky situations millennials specifically face, such as negotiating your salary, navigating those awkward times when friendships and finances collide (like what to do when you can’t afford to split the dinner bill evenly with your pals), and getting financially naked with your partner. You’ll even learn a bit about investing, buying a house, and saving for retirement — and yes, all of those are possible, regardless of how much (or how little) you earn right now.
You can take your sweet, sweet time with this summary. Read a chapter at random when you need to spend some quality time in the Whiz Palace or flip to the retirement chapter when you start a new job and have no clue how to handle a 401(k). There will be some financial jargon in this summary, but it’s mostly a safe space for you to learn about money with more than a dash of humor. By the end, you’re going to feel confident instead of terrorized each time you balance your budget.
Putting in the effort to understand how money works can ensure that you set your future self up for a life of leisure
Money can allow you to quit a job to be your own boss or step it up from sleeping in your childhood bed and moving into an apartment of your own. Money gives you the opportunity to help others in need. And with proper management and planning, it lets you retire eventually, so you don’t have to continue exchanging your time and energy for a paycheck until your last breath.
The way you handle money is primarily driven by your mental attitude toward it, which is shaped by a number of things, such as your relationship to future thinking, how your parents related to money, and your financial fears.
It’s understanding money — not just having it — that equals empowerment.
Your relationship to money started way before you got your first credit card or signed for your first student loan. It began forming around the time you started to realize how those around you, most likely your parents, related to money.
Answer the following questions to help you figure out which combination of steps will be best for you:
• What’s my first memory of money?
• How does that memory make me feel?
• How did I get money to spend growing up?
• When I did have money to spend, what did I buy?
• What are my financial concerns today?
• Why do I have these concerns?
• How did my parents talk about money when I was a kid?Was I told that asking about money was rude or inappropriate?
Are you worried about money running out? Being in debt forever? Needing to help out your family financially? Then your financial mindset may be one of fear. Did you ever get to have healthy conversations about finances growing up, or were you instructed that money is a dirty conversation akin to discussing your sexual proclivities in public? If talking money still seems as dirty as handling the currency itself, then you may have a financial mentality of anxiety or naïveté.
Did you know? You have a choice, you can either let money control and define your life, or you can control it. Most of us would pick the latter option, but unless you take charge of your finances, the money will call the shots.
No matter how you feel about the B-word, having a budget puts you in control of your money
There are myriad ways you can take control over your money, which is why it’s imperative you select one that works not only for your financial situation but also for your personality. This chapter contains different budgeting styles to help you decide which one is right for you.
The Cash Diet. You pay for everything in cash. If you need to buy a plane ticket or pay your bills, you’ll probably have to do those online. But everything else must be paid for in cash.
Add up your monthly income and then subtract your fixed bills. These bills may include rent or mortgage, cell phone bill, utilities, transportation costs, student loans, and cable or Hulu or Netflix. You should also subtract the amount you’re putting toward your retirement fund and your savings account.
The amount left after you subtract your fixed expenses and your savings is yours to spend for that month. It may be wise to divide this number by four and have a fixed amount of cash to use each week. When you’re out of cash, you’re out of cash. No more spending for the week or month.
A month of using the cash diet system quickly helps you see how easily you’re spending on mindless purchases.
The Tracking Every Penny System. You’re going to record every financial transaction you make, down to the penny. No matter which type of recordkeeping you pick, this budget works only if you’re diligent about recording every penny you spend. Using budget trackers can help automate some of the processes and perhaps even streamline beautiful charts and graphs of your spending if that’s something that gets you jazzed about handling money.
After updating your spending in your preferred tracking method, it’s time for some simple analysis. The Tracking Every Penny budget not only prevents you from overspending, but it also enables you to notice patterns in your spending you either didn’t know existed or want to focus on changing in lieu of redirecting those funds to other money goals.
Zero-Sum Budgeting. The black belt of budgeting tactics, the Zero-Sum Budget uses last month’s income to pay for this month’s expenses. It enforces the notion that all your dollars should be assigned a “job” and is the foundation for the popular budgeting tool YNAB (You Need a Budget), one of many budgeting apps you could use.
The Zero-Sum Budget is one of the most effective ways to break the paycheck-to-paycheck cycle as well as aggressively pay down debt and hit other savings goals.
Did you know? Keeping the cash in your wallet allows you to easily eyeball exactly how much you have left to spend, which makes it easy to evaluate your impulse purchases or your craving for that late-night trip to grab the guilty-pleasure snack of choice.
Credit scores and reports matter; know what the FICO credit score means
What’s the difference between a credit report and credit score; the credit report contains the information used to generate your credit score. The credit score is the simple, easy-to-understand piece of information that is used to judge each other, even though the report is really what matters most.
Credit reports contain a detailed history of the ways in which you’ve interacted with credit and debt. Each of your applications for a credit card is noted, and those notes stay on your report for two years. It isn’t all gold stars and participation trophies on your credit reports. The negative bits get on there too. Late payments, delinquent or defaulted loans, items in collections, unpaid tax liens, bankruptcy, and foreclosures will all be recorded on your credit report and damage your credit score.
A strong credit score proves to a lender that you’re reliable, which directly correlates to favorable loan terms.
A high credit score will result in low (or lower) interest rates on any money you borrow. A low credit score will mean high-interest rates on loans or potential outright rejection of your loan applications from lenders.
The FICO credit score determines much of your financial fate. It ranges from 300 to 850. Just like pretty much anything in life (except golf and darts), the higher the score, the better you’re doing.
800+: Exceptional
750–799: Excellent credit
700–749: Good credit
640–699: Fair credit
580–639: Poor credit
Below 580: Bad credit
What’s a “Thin File”? A thin file can mean you do not have a credit score or the result of no or minimal credit history. You may be in the process of building — or rebuilding — your credit, and there simply isn’t enough information on your credit report to generate a score. Don’t panic over your thin file and immediately start applying for a bunch of credit. Keep steady at using one or two credit cards wisely and making payments on any existing loans. This strategy will build a strong credit history, and you’ll have a credit score in no time.
Did you know? Student loans help build your credit score if you pay them on time and never let them default or become delinquent. However, if you are in college and aren’t making payments, then your student loans aren’t helping you build credit until you graduate and start forking over money each month. Just having loans in your name isn’t enough. The credit bureaus need to see that you’re making payments and keeping your loans in good standing.
Learn how to handle student loans without having a full-on panic attack
There’s no mandate that you must wait until after you graduate from college to start paying back your loans. Making payments while you’re in school doesn’t do any harm. If you make a payment, you’re not required to keep making payments consistently or lose your grace period.
Some ways magically come up with the money to put toward loans while you’re still in school
Situation #2: I’ve already graduated — what now?
• Participate in a work-study program
• Become a resident assistant
• Work during the summer
• Explore paid internshipsEntrepreneurship
Pull your records. Got federal loans? Just log into the National Student Loan Database (https://www.nslds.ed.gov), select “Financial Aid Review,” input the requested information, and your loans will pop up. For private loans, your best bet is to pull your credit report. Your loans should be reported on your credit report, even if you haven’t started making payments.
First-time payer? Connect with your servicer before the end of your grace period to find out the due date of your first payment and the minimum due. Begin making at least the minimum payment due (the higher, the better).
Can’t afford the minimum? Consider putting your federal student loans on an income-driven repayment plan such as IBR, REPAYE, or PAYE. You can initiate the process via your student loan servicer. You will need to provide proof of income with your old tax returns or a recent pay stub. You never need to pay a third-party service to enroll you in one of these programs.
Check if you’re eligible to have your federal student loans forgiven through a program such as Public Service Loan Forgiveness (PSLF) or Teacher Loan Forgiveness.
Refinance your student loans if that makes sense. You need to have graduated, have a steady source of income, and a 700+ credit score to be a contender. Don’t refinance Federal loans unless you’ve got well-founded emergency savings, are stable in your career, and have no plans to get loans forgiven.
Did you know? Ditching payments can annihilate your credit score and make your credit report a nightmare to clean up. Your future self would happily find a wormhole to come back and slap you across the face for ignoring your student loan bill.
Do your due diligence — be aware of your partner’s financial burden before being yoked in marriage
The first step in getting “financially naked” with your partner is to create a list of what needs to be shared about your individual financial situations.
You two should be willing to share.
What type of debt you have:
• Student loans
• Auto loan
• Personal loanMedical debt
How much debt. Be warned that this number may get downplayed the first time you have this conversation, so follow up at some point in the future, in a completely non-accusatory way.
Your credit reports and scores. A lackluster credit report and score isn’t exactly a reason to ditch a new love.
Your credit report is your STD panel for the financial world
How you’re currently handling the debt. Ultimately, you want to enter a discussion about how you’re both handling your debt currently and paying it off and your visions for how a couple should deal with money together.
As with other intimate acts, it makes sense to start with some smaller stuff first. Begin with asking some vague topics about money. Ask each other things like:
Answers to these questions may not give you specifics about your partner’s financial situation, but they will certainly illuminate his or her general relationship with money.
• “How much do you think it’s important to have saved in an emergency fund?”
• “What are your feelings about credit card debt?”
• “What’s your biggest financial fear?”“Would you consider debts brought into a marriage the couple’s problem or each person’s issue?”
Learn the art of negotiation, how to ask what you want
Whether you are negotiating on a starting salary or meeting with a boss for an annual review or communicating to a client that you’re raising your rates as a freelancer, it’s important to learn the delicate art of making your demands, but with tact. The following steps will help you.
Practice:
Doing a mock negotiation with a friend or parent is a good step, but try negotiating with some stakes at risk. Call your Internet provider and try to get a better deal, or see if your credit card company will lower the APR on your account. Any and all experience with negotiating, even if the stakes are saving only $10 a month on the Internet, is helpful.
Don’t get mad if you determine you’re underpaid within your own company. Instead, get ready to negotiate!
Know your worth:
Do the research to go into the meeting prepared. Know the average wage of someone doing your job in your city and at other companies and your own. Provide detail if you are aware of other employees in the company doing the same work and earning more than you. And you should be getting a salary that more than keeps pace with inflation each year.
Have your metrics ready:
Have physical proof of the improvements you’ve made and the successes you’ve had since your last review; use them to prove that you’re ready for a promotion and/or raise.
Ask for the order:
Tell your employer (or client) what you want. State plainly how much you expect to see in a raise or that you want the promotion to Junior Executive Head of Something or Other and the associated pay raise.
Leverage on the power of compound interest through investing for the long haul
Don’t believe that investing is a short-term deal — that you buy a stock on Monday, watch it closely, and sell it by Wednesday or Thursday. While some people certainly do that, successful investors usually hold their investments for years before deciding to sell. It is a lot like planting a seed and waiting for a tree to grow. It’s about time in the market, not timing the market.
Should you seriously be thinking about investing if you have debt? Well, yes, in a way. Save for retirement: You need to at least be contributing toward a retirement account, even if you have student loans. The only real exception to this rule is if you will start missing monthly minimum payments on credit cards or student loans by putting 3 percent to 5 percent of your paycheck toward a 401(k).
The first step to successful investing is understanding your risk tolerance and how it will impact your strategy. Let’s say you’re the type of person who is going to panic when a major event causes the stock market to go into a free fall. You probably should just avoid logging into your portfolio entirely on days the market is taking a tumble.
Here’s how to tell if you’re ready:
• You contribute to a company 401(k) or 403(b)
• You have three to six months of living expenses saved
• You have no high-interest debtYou’re willing to do some research
Start investing early and consistently to properly take advantage of compound interest.
Do you really need to invest when you can just save? Yes, you do really need to invest, even if that’s contributing to a company 401(k). The longer your money just sits around in that pitiful savings account — even if you did already switch it over to one that earns at least 1.00 percent APY — then you’re not doing much to help yourself accumulate wealth.
Due to inflation and the natural erosion of your purchasing power by leaving your money at 1.00 percent APY, you aren’t doing yourself any favors by saving alone. That means your money is losing value if it’s just sitting around in savings.
Did you know? If you invest $100 and get an 8 percent return after year one, you have $108. If you decide not to invest anything else and to just leave the $108 alone. In year two, you would be earning interest not only on your initial $100 investment but on the additional $8. If you get another 8 percent return, you’ve earned $8.64 and now have $116.64. This is compound interest.
You have the ability to retire happy and live a life of leisure that you crave — invest early
Recent surveys have speculated that the traditional retirement age of 65 isn’t going to be possible for our generation. The new number is looking more like 72 to 75 years old. It comes as no surprise when you see these stats:
• The average balance in a 401(k) in March 2016 is only $87,300The average IRA balance is $89,300
Those numbers include averages of accounts across a wide variety of ages, so even with the millennial generation lowering the average; it is unsettling to see averages this low.
Putting money into a retirement account does mean you’re investing. You have lots of options like stocks, bonds, money markets, and certificates of deposits.
Compound interest favors the young because the longer you have to get a return and to weather the ups and downs of the market, the more you’ll add to your net worth.
It’s really important that you start saving for retirement now!
Putting money away for the 40 years from now isn’t just about making life easier for the future you. You can also use retirement accounts as a tax advantage for today’s you. Traditional 401(k)s, 403(b)s, and IRAs are funded with pre-tax dollars and so will lower your taxable income today, but you will have to pay taxes in the future when you withdraw money. A Roth 401(k) or IRA is funded with post-tax dollars, meaning you don’t get any tax advantage today, but you do get to make your withdrawals without paying taxes in the future.
For the Traditionally Employed: Employer-Matched Retirement Accounts, start your retirement savings with an employer-matched 401(k) or 403(b). A 401(k) is the type of account you’re likely going to see at a for-profit company. A 403(b) is the retirement vehicle you’re probably offered at a non-profit company or in a government position.
• For the Self-Employed and Traditionally Employed Looking to Double-Down, start an Individual Retirement Arrangements. There are quite a few types of IRAs, but these are the four main ones that you should know.
• Traditional IRA: Investing with pre-tax dollars up to the annual limit ($5,500 in 2016).
• Roth IRA: Investing with post-tax dollars up to the annual limit ($5,500 in 2016).
• Simplified Employee Pension (SEP-IRA): As a freelancer, even with just an employee roster of one (you), you’re eligible to contribute to a SEP-IRA.Solo (or individual) 401(k): This isn’t an IRA, but it is another option for the self-employed or traditionally employed person claiming freelance income on your taxes.
Did you know? Except for a few exceptions, you can’t access your retirement funds until you’re 59½. If you tap them early, you’ll have to pay a penalty fee.
Conclusion
Understanding money allowed will allow you to feel empowered and take more risks. Learning how to get your financial life together will keep you from feeling helpless in many situations: being stuck in a job you’re ready to leave, staying trapped in the paycheck-to-paycheck cycle, remaining in a bad relationship because you’re unable to support yourself, and even passing on poor financial behaviors to the next generation. And the good news is, you’re already on the path to getting your financial life together!
No matter how you elected to approach this summary, it will have provided you with the groundwork to begin building (or rebuilding) or tweaking or validating your approach to finances. Personal finance is nothing if not personal, so the variety of voices and techniques should help you find the options for budgeting, paying down debt, building and maintaining a strong credit score, investing, negotiating, and saving for retirement that is ideal for you.
Try this
Consider this the “3-Step Process to a Mind-Blowing Credit Score.”
1. Make one or two small purchases on your credit card each month to keep your utilization ratio low (extra gold stars if you keep it below 10 percent). Sure, you can make more purchases if you want, but one or two small ones are enough to ensure that you use the credit limit but don’t overspend.
2. Pay off all your bills on time and in full.
3. Rinse and repeat.
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