Millennial Financial Health Checkup: How Do You Stack Up?
It’s a question most of us ask ourselves at one point or another: “How am I doing financially compared to my peers?” While you can’t necessarily base the health of your finances on your friends' bank statements, it's a natural instinct to want to know how you measure up.
And if you happen to be a Millennial, you know how closely the world is watching you, especially when it comes to your career and finances.
In fact, a recent study from Elevate’s Center for the New Middle Class looked at the spending habits and financial health of young people.
The good news: in general, Millennials are doing OK.
The bad news: there are some pitfalls that Millennials commonly fall into.
What are those pitfalls and how can you avoid them? Let's discuss.
Using credit cards for expenses
If you’re like a lot of people, your wallet is lined with credit cards. And if you’re financially responsible — meaning you pay off your balance each month and on time — then using credit cards is typically not a big deal.
But if you fall into the large group of Millennials who are using credit cards to cover the essentials, you might be headed towards financial trouble.
The study shows that Millennials often use credit cards to cover month-to-month expenses, regardless of their credit status.
In fact, one in six "prime couples" (that is, couples with a credit score above 700) have often needed to use credit to get by. One in four "non-prime couples" (credit score below 700) use credit to get by on a regular basis.
While using credit cards to pay for daily items is a common and well-accepted practice, not paying the balance off in full each month is where you can start running into trouble.
So, how do you remedy this situation? Well, you start by cutting back on your expenses and paying more than the minimum on your credit card bill every month.
Once you’ve got your credit card balances down to a manageable amount, put yourself on a credit diet.
If you’ve been using multiple cards, cut back and only use one or two cards. This will help you track your spending and make it easier to manage your payments.
Having an income that fluctuates
Younger couples are more likely to experience a drop in income than Gen-Xer’s or Baby Boomers.
If there’s an emergency or unexpected expense, finding the funds to cover those costs proves to be difficult and often very disruptive to Millennials.
Having a separate emergency bank account that is used only for unexpected expenses can help in this situation. Set-up a monthly direct deposit —and if you have to start small, that’s ok.
As long as you put funds into this account each month, you will eventually have enough to cover some of the unexpected expenses that seem to always come at the wrong time.
Fighting about money with your partner
Fighting about money is sort of like arguing about the dirty dishes in the sink. Is the argument really about who didn’t load the dishes in the dishwasher? Often, the answer is no.
There’s typically an underlying conflict brewing that has finally surfaced because last night’s spaghetti is now stuck to the saucepan. The same is true about money arguments.
If you’re fighting with your partner about a particular charge on a credit card or the fact that one of you spends more, there’s a good chance these spats are part of a larger issue regarding your finances.
So, instead of keeping score, why not try to meet each other halfway? That’s exactly what the study recommends. The researchers found that couples who concentrated on meeting the each other's needs are less likely to have friction related to money.
Not refinancing high-interest student loan debt
And finally, if you’re paying on student loans that have a high-interest rate, you might want to consider refinancing. When you refinance your student loans, you pay off your existing loans by taking out a new loan with new terms.
Many people are able to save over $200 a month by refinancing their student loans. Not only can this relieve some of those money arguments, it may also free up some money that can now go towards your emergency fund.
If you have student loans, check out this Student Loan Refinancing Calculator to learn how much you could save.
See also: Everything You Need to Know About Student Loan Refinancing.