By Candice Lively
Digital Officer, Reputation Management
Unit Trust Corporation
What Millennials need to know
For millennials, when it comes to financial matters things can easily go awry, and nobody wants to be financially unprepared. Asking yourself these questions is crucial to setting the foundation for managing your finances and securing your future.
1. Do I have wasteful spending habits?
Evaluate your spending habits and determine if you are only spending and not saving for your future goals. If this is your reality, then having a grasp on your personal finances becomes challenging. If you want to build long term wealth, you need to be able to prioritize your expenses and decipher between needs and wants. Be sensitive to your own financial position, if you can change those bad spending habits, you should. Sometimes, small daily decisions can help, for example, you can prepare meals at home more often than you purchase meals on the go or you can ignore the Amazon alert on the reduced price on that watch list item you don’t really need.
2. Do I have specific investment goals?
Your financial goals should define how you approach investing. Identifying your financial goals and determining if they are short, medium or long‐term, will help you to determine the level of risk you are willing to undertake when constructing a personal investment portfolio. If you have a short‐term objective (something you want to achieve in the next three years) you may be very cautious with the capital you have to invest and therefore would seek out “safe” investments with modest returns. If you have a medium‐term objective, you may be willing to take on a bit more risk for a more attractive return. If you have a long‐term goal, your risk threshold may be significantly higher and you may seek out investments with higher risk‐return profiles.
We’ve all heard people talking about portfolio diversification. As a millennial you may not have the ability to successfully diversify your portfolio on your own, due to limited funds. What’s the best way for someone with limited funds to have a diversified portfolio of investments and earn the returns they require to meet their goals? Think Mutual Funds. They afford you the opportunity to invest in a wide range of financial instruments with varying levels of risk. Income Funds are suited for those who have short‐term investment goals and comprise investments in corporate bonds, government bonds, certificates of deposits and other financial instruments that provide a steady rate of return.
Equity and Balanced Funds are appropriate for those with medium to long‐term investment goals, as these Funds allow you to participate in the stock markets indirectly as well as the fixed income markets.
While retirement funds are ideal for those thinking long term, these types of funds have a higher asset allocation in stocks but still allow you to reap the benefits of a diversified stock portfolio, capital appreciation and regular income in the form of dividends. Knowing your financial goal will help you determine the investment approach that is right for you.
3. How much should you save?
There is one rule that is non‐negotiable: save a minimum of 10% of what you earn. This 10% should be a combination of cash savings and retirement savings. Covering medical expenses and preparing for retirement is essential. Saving 10% of your earnings per year could give you financial flexibility in retirement and cover for unexpected life events. Don’t have time to do this every month? Set up a standing order, and let your savings automatically accumulate for you.
4. Is there an App that can help?
There’s an App for everything! Apps like Goodbudget, Spending Tracker, Easy Budget Planner and Expense Manager allow you to record your monthly income, allocate portions of your income to different expenses and track your spending and saving as you go. Instead of having to try to remember what you spent, these Apps can tell you at a glance what your biggest expenses are and how much you probably spend on things you shouldn’t! They also provide a snapshot of how your spending patterns change, so you can see for yourself how much more you can afford to save if you were managing your income more proactively.
5. Have I thought about investing for retirement?
Retirement may seem far off for millennials, it’s not! You have 480 monthly paychecks until retirement if you start planning at age 20 and 360 monthly paychecks if you start planning at age 30. The earlier you start, the better off you will be in the long term when it comes to being able to service your future financial needs.
There’s never a bad time to reassess your goals, so in 2020, implement a savings and investment plan and stick to it.