Each generation faces unique challenges and opportunities when it comes to managing finances at different life stages. Alloy Silverstein provides the following do's and don'ts to help Millennials stay on track with their finances.
It’s natural to have uncertainties when it comes to money, especially when you’re young, but how are Millennials doing with financial management? Most of this group, born roughly between 1981 and 1997, doesn’t feel financially secure now but believe they will be in the future, according to a TD Ameritrade study. If you’re a Millennial, what can you do to keep on course and reach your financial goals? The New Jersey Society of CPAs offers some sound advice.
Don’t Get Tangled Up in Debt
According to a recent survey by the AICPA, less than half of non-retired Americans are confident they will reach their retirement goals. In order to be better off during retirement, paying off that debt should be a priority. Missed payments can lead to a lower credit rating, which can make it difficult to take out other loans—such as for a car or home—and will likely increase the interest rates you have to pay on other debt. Minimizing your overall outstanding debt is always a good idea. It can be tempting to put purchases on a credit card when you’re first starting out, but spending no more than what you can afford can help save you money on interest payments and make it easier to reach your financial goals, especially if you also have a large student loan balance.
If you have accumulated debt, "consider paying off your credit card debt as they carry high interest rates," suggests Alloy Silverstein's Mike Engleman, CPA. Julie Strohlein, CPA adds that "using a credit card isn’t entirely bad, however, since using it correctly can help you establish credit. Just don’t spend more than you can pay off each month."
Don’t Miss Growth Opportunities
Even if you consider yourself a saver, it can be difficult to know the best way to invest to help your money grow. If you’re hiding it under your mattress or parking it in a low-interest-rate savings account, you could be missing out on the chance for potential investment growth opportunities. Of course, you should be fully informed about all the possible risks of an investment, including the chance for losses as well as profits. And you should also consider your own comfort level—or risk tolerance—when making any investment. But if you are setting aside money for long-term goals, such as retirement or a child’s college education, you’ll want to select an investment strategy that allows for potential growth. Your CPA can help you determine your goals and offer advice on the kinds of investments that can best help you achieve them.
Do Have an Emergency Fund
Millennials have grown up in a time of economic uncertainty. Are you financially prepared for job loss, illness or other emergencies that could have an impact on your financial life? CPAs generally recommend putting aside enough to cover three to six months of household expenses. If that sounds like a lot, remember, saving a few dollars a week will get you there eventually, every little bit helps. The most important step is simply to get started.
Don’t Leave Money on the Table
If you’re out in the workforce, are you contributing to a tax-advantaged retirement plan? If you aren’t, you’re missing out on the chance to potentially lower your taxes while building up your retirement account. If you’re eligible to contribute to an employer-sponsored retirement plan, are you chipping in enough to qualify for the maximum retirement contribution match from your employer? If not, you’re passing up free money that will help pump up your retirement nest egg even more!
Alloy Silverstein accountant Chris Cicalese, CPA, MSTFP recommends reevaluating your withholding as it is another way you could be leaving money on the table. "It is important that you keep an updated W-4 to prevent withholding too much tax. A lot of millennials are excited to get big tax refunds, but in reality, they are just getting their own money back from the government without interest because they withheld too much tax throughout the year."
Do Get Expert Help
As you chart your financial future, there’s no reason to go it alone. Your Alloy Silverstein CPA and advisor works with people at all stages of their financial lives, helping them make the best decisions for their unique needs. Be sure to contact your CPA or financial advisor with all your financial questions and visit 360finlit.org to learn more about how to better manage your personal finances.
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© 2017 Money Matters are provided by the American Institute of Certified Public Accountants.