In today’s fast-paced world, building a strong financial foundation is more important than ever, especially if you’re a millennial born between 1981 and 1996. You might be facing distinct challenges that your parents didn’t — like student loan debt, rising housing costs, and an unpredictable job market. On the other hand, your generation is experiencing more ease in other areas, such as job flexibility and access to technological resources.
Regardless of how you view your situation, it’s crucial to take steps now if you want to secure your financial future. There are many aspects you might not be able to control, like the economic environment, so managing your personal finances and aligning them with your goals can provide you with confidence.
In this article, we provide a comprehensive guide to help you get started.
Understanding your financial situation
The first step in building a strong financial foundation is having insight into where you stand currently. Utilize budgeting apps like Rocket Money or spreadsheet templates to keep track of your income and expenses. This will help you identify areas where you can cut back and save more money. Additionally, make a list of all your debts, including student loans, credit card debt, and any other liabilities. Knowing the total amount you owe and the interest rates on each debt will be helpful for creating a repayment plan.
Increasing cash flow
Cash flow is different from monthly budgeting. In addition to tracking money coming in and going out, cash flow involves managing your resources by allocating them to key priorities that advance you towards your objectives. For example, if you cut back on eating out at restaurants, the money you save could fund a short-term goal like taking a vacation or paying off student loan debt or a long-term goal such as buying a house or saving for retirement.
Identify your short-term and long-term financial goals and write them down for motivation and accountability. Allocate your income by creating expense categories such as housing, utilities, groceries, transportation, savings, and debt repayment. Commit to achieving your goals and avoid unnecessary spending or impulse-buying.
Embrace flexible employment opportunities like gig work, remote work, and entrepreneurial ventures to explore your passions or boost your income. Whether you’re seeking work-life balance or aiming to contribute to economic growth, develop a strategy where “happiness leads to money” rather than “money leads to happiness.”
Building an emergency fund
An emergency fund is essential for financial stability. It acts as a safety net in case of unexpected expenses like medical bills or car repairs. You might also need to use the savings due to job loss or disability. Aim to save at least three to six months’ worth of living expenses in a separate and easily accessible account — preferably a high-yield savings account which usually pays a higher interest rate than a standard savings account.
Paying off debt strategically
High levels of bad debt, like credit cards, can significantly hinder Economic Freedom™. If you’re frequently purchasing non-essential items or services on a credit card without paying off the balance each month, this habit could end up costing you a lot of money in compounded interest. On the other hand, good debt is when you borrow money to enhance your net worth, such as a mortgage or a loan that helps with business growth.
Here are two strategies that can help with paying off debt:
- Pay off one account at a time: Focus on paying off the account with the highest interest rate first, like a credit card. Alternatively, you could choose to pay off the account with the smallest balance first. This second strategy may help you gain a sense of achievement and motivate you to pay off accounts with larger balances.
- Consider consolidating debt: If you have multiple debts, consolidating them into a single loan with a lower interest rate can simplify your payments and reduce the total interest you pay.
Invest in your future
Investing is a key component of building wealth over time. While compound interest on credit card debt can be costly, compound interest on investments can help grow your money. For example, a balance of $6,000 in an investment account with compound interest of 3.5% could lead to a balance of $17,000 in 30 years, due to interest on the principal as well as the accrued interest.1
Contributing to retirement accounts like a 401(k) or IRA is helpful for building a substantial nest egg for the future. These accounts provide pre-tax benefits on contributions with traditional accounts and post-tax benefits on retirement distributions with Roth accounts. Additionally, some employers match your contributions which is basically “free money” you’re receiving to help in retirement.
The earlier you start investing, the more time your money has to grow. When choosing how to allocate investments in an account, spread them across different asset classes, such as stocks, bonds, and real estate, to help reduce risk. You might also have an interest in socially responsible investing (SRI) or environmental sustainability, social justice, and corporate ethics (ESG) investments.2 According to your risk tolerance and age, you can adjust the allocations in classes over time.
Improve your financial literacy
By reading this article, you’ve already empowered yourself with more knowledge. Confidence in your financial decisions, grounded in expert information, can lead to successful personal finance management. There are numerous books and articles on budgeting, investing, and debt management. Additionally, you can attend local or online workshops and seminars on personal finance. However, always verify the qualifications of those who provide advice, especially when it comes to investing.
Seek professional advice
If you don’t feel you have the time or ability to manage your finances for optimal outcomes — or simply don’t want to worry about money — you might seek advice from a financial advisor. For instance, Mercer Advisors has a program for our clients that can consolidate some types of retirement accounts under one investment strategy to align with other aspects of your financial plan. We manage all the activity in the retirement account related to trades, allocations, rebalancing, and more.
Consider hiring a fiduciary, which is legally obligated to always act in your best interest. This helps ensure that the advisor’s recommendations are not influenced by sales commissions and that you receive personalized guidance rather than generic advice. A good financial advisor could become one of the most trusted and valued people in your life.
Get started
Building a strong financial foundation can bring lasting rewards, both financially and emotionally. Achieving financial independence, freedom, and control over your choices is possible. You can ensure they’re aligning with your personal and professional goals. Instead of seeing your generational circumstances as challenges, view them as opportunities.
At Mercer Advisors, we’ve been helping families amplify and simplify their lives for 40 years. Our unified team of planners, portfolio consultants, accountants, and estate specialists is available to design and execute your financial plan. We’ll hand-pick an advisor who will focus on your specific needs and preferences. If you’re ready to pursue Economic Freedom, let’s talk.
1 “What is compound interest?” Fidelity, Dec. 16, 2024.
2 “What Is Socially Responsible Investing (SRI)?” Forbes, May 24, 2023.
3 “Psychological Research Says Wealth Is Created By Chasing Positive Emotions, Not Money Alone.” Oct. 2, 2022.
Mercer Advisors Inc. is a parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements.
All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. Content, research, tools and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors.
Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy or product made reference to directly or indirectly, will be profitable or equal to past performance levels. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals may materially alter the performance and results of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client’s investment portfolio. Future investment performance cannot be guaranteed. There is no guarantee that ESG or SRI investment products or strategies will produce returns similar to traditional investments. ESG and SRI investment criteria exclude certain securities/products for non-financial reasons, and therefore investors may forego some market opportunities available to those who do not use such criteria. Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark.
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