How Young Professionals can be Financially Independent
How Young Professionals can be Financially Independent By Joshua A. Ortner, CTFA
Recently, I have read many articles claiming that millennials are not saving money and do not understand finance. Millennials, at it again! I, however, have found that not all millennials fit into this stereotype – and, even if they do, many are looking to improve their financial literacy and find way to save more than they spend.
Below are a few key takeaways that can start to change your relationship with your finances – and may even help you begin your journey to financial freedom!
Stop comparing spending habits
Have you ever been scrolling through Instagram or checking your Facebook timeline and started comparing your lifestyle to that of your friends? Have you been out with someone, watching them buy round after round as they talk about their most recent trip to Europe, and wished you could partake in the same spending habits? This trend of comparing your lifestyle to that of your friends can kill your budget; subconsciously, you may be changing your spending and saving behaviors to match or compete with your friends – at the risk of your own financial stability.
To maintain your budget and keep yourself financially healthy, try to stop comparing your lifestyle to that of your friends. Take a break from social media so you stop seeing what car someone is driving, where they just vacationed, or what bag they are carrying. Suggest less expensive outings to keep your time with your friends within your own budget. You will begin your journey to financial freedom only once you stop trying to follow the herd financially.
Don’t mortgage your life away
The biggest expense you are going to have in your life is, most likely, a house. On average, over 30% of your income will be spent on that house. If you have shopped for a home, or done any research into the home-buying process, you will likely have heard that your house, along with being your biggest expense, will also be your biggest investment. However, your house is only a true investment if it goes up in value!
Change the way you look at housing costs. Just because you can spend over 30% of your income on a house, and are qualified for a more expensive home, doesn’t mean that’s the one you must buy. Instead of purchasing a brand new, move-in-ready home at a 10-year-high price, look at homes priced lower than what you are qualified for and that you can improve. You will thank yourself when home prices normalize – especially if you’ve done a few home improvements and increased your home’s value! By spending a little less up front, you can put more into your home during the years you live there, and potentially get more for it when you decide it is time to sell.
Break up with debt
Credit cards, car loans, student loans, and other debt can often feel insurmountable. The next time you receive your credit card or a loan statement in the mail, look at the annual percentage rate you pay. On credit cards, that rate can be anywhere from 14% to 28% - or more! On a car loan, most people pay between 5 and 7% on a used car loan, or a little less if you bought new.
You can’t afford to make others rich on interest. One day, you want to be the one making 14% on your savings so you can retire somewhere warm and sunny! While you’re working to get there, though, debt is not your friend. Make sure you are trying to pay your debts down as quickly and responsibly as possible, and don’t buy things you know you can never afford to pay down. People who are financially successful know when and how to say no.
If you have debts that will be paid off over years (mortgages, car loans, or student loans), make sure you are taking advantage of any programs offered to keep your payments reasonable and in repayment. Do not miss any monthly payments, or you’ll accrue extra interest along with having to pay a late payment fee in many cases! If you have Federal student loans, make sure you are taking advantage of the various payment options to keep your monthly payments affordable.
Saving and investing is one of the best things you can do to ensure your financial success. As you start cutting costs, set money aside for your savings. Pay down any short-term debt obligations, and start investing. You will feel great when you start seeing your savings increase every month! When your savings starts working for you, you can start to see how it creates more independence and financial confidence. You can breathe easier and feel better by knowing you don’t have to worry about what you will do if you lose your job or are faced with an expensive problem. Investing is for everyone.
These steps will help get you on your way to the financial freedom you need and deserve. Of course, hiring or talking to a professional along the way can help, too. Make sure this person has the heart of an educator and not a salesperson – they could charge an hourly fee or small percentage to help!
After growing up on a family farm in Northeast Ohio, Josh went on to Kent State University majoring in business finance. After working for other investment firms that treated their clients just as numbers, he created his own firm over six years ago. Say hi to Josh and connect with him on LinkedIn here.