Overview
In these times of economic uncertainty, young adults are facing an uphill battle. Saddled with student loan debt, they are entering a highly competitive job market and dealing with unaffordable housing costs. However, there are strategies young adults can use to help maximize their chances of success. In this article, we will review 10 smart financial tips to help millennials and Gen Z navigate the current economy.
Tip #1: Follow a Budget
The best way to manage your cashflow is to follow a budget plan. List your total monthly income and your total monthly expenses. Review your expenses and see whether you can eliminate or reduce any of them. Set your savings and debt repayment goals. If your expenses exceed your income, you may have to make adjustments to your spending or increase your earnings.
There are many different budgeting systems people commonly use, including the following:
- Zero-based budget: In this budgeting method, you assign every single dollar of your income to a specific purpose.
- Pay yourself first: In this budgeting method, you put some money into your savings account as soon as you get paid.
- Envelope system: In this budgeting method, you put the money that you’re going to spend in a given category in an appropriately labelled envelope. For example, one envelope can be labelled as “groceries,” another as “gasoline,” and so on.
- 50/30/20: In this budgeting system, you allocate 50% of your income toward needs, 30% toward wants, and 20% toward savings and debt repayment. You may not be able to allocate 20% toward savings, so adjust the percentages in accordance with the reality on the ground.
- Reverse budget: Determine your savings and debt repayment goals and reverse-engineer the amount of money you can allot toward your needs and wants.
Whichever budgeting method you choose, ensure that you stick with it long enough to see results. Slow but steady wins the race.
Tip #2: Build an Emergency Fund
Life is full of unpredictable events, which can include job loss, car repairs, medical bills, and more. Therefore, it’s essential to have an emergency fund to protect yourself in events like these. Start small and stay consistent. Over time, even a small amount of money set aside into your emergency fund will accumulate. For example, $50 set aside per week would result in $2,500 of savings in 50 weeks. According to Statistics Canada, one in four Canadians are unable to cover an unexpected expense of $500. That means a quarter of the population is always teetering on the edge of bankruptcy. Don’t be part of that statistic – start building an emergency fund today.
Tip #3: Increase Your Income
Increasing your income can be challenging. It may even seem impossible. However, with the right training, education, and skills, it’s entirely possible to obtain a higher-paying job. There are many online courses and certifications available in a wide range of industries and disciplines, such as data science, UX design, and software development, to name a few.
Alternatively, you can pick up a part-time gig or a weekend gig to supplement your main source of income.
Another option is to start a side hustle, sell art online, etc. The Internet gives you access to a nearly unlimited potential customer base, so if you have a monetizable product, hobby, or skill, considering using that to generate additional income.
Tip #4: Lower Your Variable Expenses
Along with increasing your income, you may wish to consider lowering your variable expenses. For example, if you have a habit of purchasing a coffee at large coffee chains, you may wish to brew your own coffee home. You will save a few bucks. Over time, those few bucks can result in more significant savings. Alternatively, you may opt to shop in thrift stores, avoid purchasing new technology unnecessarily, or opt for a cheaper gym membership or no gym membership at all. There are many creative ways to save money, so review your variable expenses and come up with a plan to keep your variable expenses as low as possible without sacrificing your quality of life.
Tip #5: Consider Debt Consolidation
If you have multiple debts and creditors you owe money to, consider debt consolidation. It may allow you to simplify your monthly debt payments. You may also be able to obtain a lower overall interest rate on those debt payments, in addition to only having to worry about one creditor instead of several. Consult with a professional to ensure that this is the right option for you.
Tip #6: Start Investing Early
When you’re still young and in your 20s or early 30s, you have one massive advantage: time. If you start saving and investing early, you will get a head start and give yourself much more time to experience the compounding effects of the compound interest rate and returns on your investments. Therefore, by the time you reach retirement age, you may grow much more substantial savings and investments, largely as a result of starting early and allowing the compound interest rate to do its magic over a sufficient period of time.
Tip #7: Improve Your Credit Score
Your credit score is the main indicator of your creditworthiness. It signals to prospective lenders – and even landlords – that you’re able to meet your financial obligations reliably. Therefore, a higher credit score may open doors to better loan terms and getting approved for higher-quality rentals or mortgages.
There are many potential ways to improve your credit score. One of the main methods is to pay your bills on time. If you consistently pay your bills on time and build an extensive credit history, your credit score will likely be high. In addition, keep your credit utilization ratio low (below 30%), keep your credit card balances low, don’t max out your credit cards, and request a credit limit increase when possible, without increasing your spending.
One way to ensure that you don’t miss your bill payments is to automate your bill payments. This way, you don’t have to think about it – the amount is automatically debited or charged to your account, without your having to lift a finger.
Consider signing up for Credit Verify as well. You will be able to monitor your credit score and automatically detect mistakes on your credit report, which may help you achieve a higher credit score. The registration process is quick and easy and takes place entirely online.
Tip #8: Improve Your Financial Literacy
Being financially literate is a multifaceted construct. It involves understanding budgeting, saving, investing, taxes, and more. Financial literacy is not a fixed state of affairs – it is perpetually under development. Therefore, make sure you continuously learn about financial matters. Read up on budgeting techniques, understand the importance of credit scores, learn the basics of investing, and understand how taxes work in your province or region.
There are many resources available to help you improve your financial literacy, including blog articles, books, courses, video tutorials, and more. You may even ask your family or friends for advice, but make sure that your family and friends themselves are knowledgeable about the subject. Speak with a professional about your unique financial situation and get clear guidance there, but ensure that you’re always learning. In today’s world, there’s no shortage of ways to increase your financial knowledge, as long as you avoid scammers and don’t succumb to flashy social media trends.
Tip #9: Understand Taxes
It’s important to understand the basics of taxation in your province or region. In Canada, you will face both federal and provincial taxes. There are many online tools available to help you file your taxes without a hassle and without visiting an accountant in person, such as Turbo Tax. You can link up your Turbo Tax account to your Canada Revenue Agency account to streamline the process. Filing your taxes every year is one of the biggest rites of passage as an adult. Learn all about the process of filing taxes and what tax deductions and benefits you may qualify for.
One way to lower your annual tax burden is to contribute to your Registered Retirement Savings Plan. You will need to have an RRSP contribution receipt on hand from your bank or RRSP plan issuer. Usually, you will be able to access those receipts on the bank’s or issuer’s website, under a section devoted to tax documents. Your RRSP contributions are tax-deductible, so they can help lower your overall tax burden. Over a lifetime, this can result in significant savings on your part.
In addition, read the guidelines carefully to know whether you qualify for any tax breaks. You may be a parent, a spouse, or have a disability. You may have a low or modest income. All of these and other factors may qualify you for some benefits, so check to ensure that you’re optimizing your tax breaks, credits, and deductions. See this section of the government website for more information on taxes in Canada.
Tip #10: Automate Your Payments
As mentioned in tip #7, missed or late payments can have a negative impact your credit score. Therefore, automating your bill payments can simplify the process of making your payments on time. You will never have to think about making the payments again. They will be automatically debited from your chequing account or charged to your credit card. Go on the service provider’s website, specifically the billing section, to see whether there is an option for pre-authorized debit (PAD) or pre-authorized payment (PAP) plans. Most bills can be automated, including rent, phone, Internet, hydro, car insurance, home insurance, and other bills. Imagine never having to go on a website again to pay a bill – it will be done for you by modern technology.
The key is to ensure that you have sufficient funds in your account to cover each bill payment. In this way, you can avoid non-sufficient funds (NSF) fees, which can be costly and have a negative effect on your credit score. Having enough funds in your account to cover the necessary bill payments is a matter of proper budgeting, optimizing your income, and managing your expenses.
Final Thoughts
Younger millennials and members of the Gen Z cohort today are facing many economic headwinds: a housing crisis, a cost-of-living crisis, stagnant and low wages, underemployment, and various barriers to financial and economic success. Therefore, it’s more important than ever to follow smart financial strategies like the above to achieve the best financial outcomes.
If, at any point, you are unable to meet your monthly expenses, you may want to apply for a personal loan online via Crediteck. We don’t check your credit score or credit report during our simple and quick online application process. Personal loans offer a longer repayment period and more flexibility than payday loans. They may also help you cover a longer period of expenses and may be a better path than taking out multiple payday loans.
