FINANCIAL PATHWAYS: GUIDING MILLENNIALS TO SMART MONEY MANAGEMENT

FINANCIAL PATHWAYS: GUIDING MILLENNIALS TO SMART MONEY MANAGEMENT

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Many personal finance experts note that millennials often face a lot of uncertainty when it comes to making the right financial decisions. This indecision can make the entire decision-making process much more challenging for them.

Financial choices millennials should make
Here are some of the key financial decisions millennials can consider and how these choices might affect their personal lives:

Debt repayment or savings – The easiest answer to this dilemma is to first create an emergency savings fund. Once you have that in place, the next steps depend on your particular situation. Generally, it’s wise to pay off any debt that has a high interest rate, as this can result in savings that might be comparable to returns from investing. Prioritizing which debts to pay off first should be based on your current financial health, as long as you have an emergency fund that covers at least 3 to 6 months’ worth of living expenses. So, finance experts suggest deciding between paying off debt or investing by comparing the interest rate on your debt to the potential return on investments.

401k or Roth IRA – If possible, choose both. However, in case of financial limitations, go for a 401(k) that matches your employer’s contribution first. A 401(k) is a retirement savings plan sponsored by your employer, allowing you to contribute pre-tax money that grows tax-deferred until you withdraw it in retirement. On the other hand, a Roth IRA (Individual Retirement Account) is something you can open independently with after-tax dollars. The money in a Roth IRA grows tax-free, and you can withdraw your original contributions without penalties whenever you like. As of 2013, you can contribute up to $5,500 to a Roth IRA if your adjusted gross income is below $112,000 for single individuals or $178,000 for married couples. Contributions decrease if your income is higher, and if it’s above $127,000 for singles or $188,000 for couples, you can’t contribute at all. Ideally, if you can manage it, opt for both a 401(k) and a Roth IRA.

Buy or rent – While popular belief may lean towards renting, the decision really depends on your circumstances. There’s no one-size-fits-all answer. It’s important to do what feels right for you rather than copying what others have done. What worked for someone else might not work for you. Don’t succumb to the pressure of buying a home just because it was the dream of past generations. For millennials, it’s more about being flexible and avoiding commitment to a single location. Consider how long you plan to stay in one area. If you’re uncertain, renting might offer the flexibility you need to accept a job offer in a different location without feeling tied down.

Personal finance experts agree that millennials are redefining the American Dream and are choosing flexibility over homeownership. These financial advisors recommend remaining adaptable in your living situation until you have secured the job you want.

This post was featured on the Carnival of Financial Camaraderie, Aspiring Blogger, Prairie Eco-Thrifter.