Many millennials are experiencing their first taste of the working world after they graduate college — and are in need of realistic budgeting tips to help them stay on track.
Just a few years ago, many people could proudly look back at their teen years and recall their very first job — clearing tables at a restaurant, collecting tickets at an amusement park or fetching sneakers from the basement of a department store. These experiences taught them the importance of hard work and the sad reality about taxes (as in: A whole lot of tax money is removed from your pay before you get to cash that sweet check). Nowadays, folks who identify as millennials are less likely to work before they graduate college, which means every expense and adult reality is thrown at them at once — at the same time, they’re probably also paying off exorbitant student debts.
Add to this soup of sudden responsibility the fact that few high schools and colleges offer mandatory finance classes to teach the basics, and you’ve got a recipe for a lifetime of debt and living without any real accumulation of emergency savings (fact: 76 percent of Americans live paycheck-to-paycheck).
Whether you’re living with your parents or have taken the plunge and put a down payment on your very own condo, you’re going to need help arranging your financial life. We spoke with Michael Thiemann, CEO of Zebit — a free financial wellness program that does everything from providing budget planning tools and interactive education about finance to offering ZebitLine, a no-cost, interest-free way to make purchases without using a credit card — who offered six tips for millennials trying to get their finances in order.
1. Understand your situation
It wouldn’t make sense to begin a weight-loss program without knowing your BMI, right? The same logic applies when you’ve decided to commit yourself to living within your means — your first step is to have a clear understanding of what you’re bringing in and paying out. “People just starting out need to know how much they’re spending on rent and how much they have in debt,” Thiemann says.
Free online services like Zebit and Mint allow users to connect their bank accounts to their budget accounts, track what they spend and create a budget they can follow on a daily basis. Old-fashioned pen and paper are equally effective — but nothing will work to your advantage until you surrender to reality and commit all of your expenses to paper (even that $9 smoked butterscotch latte you treat yourself to on your morning commute). ‘Fess up so you can move forward.
2. Learn financial terms and concepts
Many of us graduate high school knowing how to dissect a frog, but having no clue about basic financial concepts related to taxes, interest, asset allocation, 401(k) and ROI. The best way to become good at anything is to take a genuine interest and learn as much as possible — personal finance is no exception. “Search for ‘basic financial literacy’ because it’s hard to budget without understanding concepts and terms,” Thiemann says. Zebit also offers an online financial education wellness center that is available to members who can sign up through their employers free of charge.
3. Stay within your budget
We all wish there was a pain-free and mythical way to accumulate wealth, but it all boils down to this simple fact: If you spend less than you make, you’ll come out on top at the end of each month. After you gain an understanding of your earnings and the expenses you absolutely must pay, like student loan debt and rent, create a budget using an online tracker, like those offered by Zebit, Mint, BudgetTracker or Personal Capital. Millennials just starting out may be unaware of how much they should be spending in categories like groceries, personal care and entertainment. Instead of pulling arbitrary numbers out of thin air, survey friends and family in your area and find out how much they spend and what tricks they use to save (including clipping coupons).
4. Don’t get discouraged
One of the most common pieces of wisdom you’re likely to hear when starting out is that you should have at least three months’ salary squirreled away in your savings account for a rainy day. As lovely as that would be, many college graduates living on their own for the first time can barely make rent and subsist on a diet of daily pizza at the same time.
Thiemann suggests starting small: Make it your goal to save $200 the first month, $500 the next and $1,000 in a few months. If your employer offers a 401(k) program that matches your savings, jump on it. Your ultimate goal should be saving money for retirement, any other unexpected mishaps that may come your way (hello, car troubles) and even happy events, like weddings.
5. Seriously, stop dining out so much
The number one expense millennials overspend on? Dining and drinking out. “You’ve got your Starbucks in the morning, your beer in the afternoon, you don’t feel like cooking dinner, you go out for pizza and you have another beer,” Thiemann says. “It’s amazing how that $10 a day adds up. If you can control that, you can probably save.” The second-biggest expense that can blow your budget: housing. If you can swing it, there’s no shame in living with Mom and Dad for a few years while you save money — or search for more affordable housing and a few roommates with whom you can split bills.
6. Use credit cards — wisely
A lot of us have it all wrong when it comes to credit cards: We use them to pay off really big expenses and rely on our debit cards to pay for everyday items, like groceries. Instead of thinking of credit cards as the enemy, realize they’re a loyal, but volatile friend you have to treat like a bull in a china shop. “For a disciplined person, using a credit card is the cheapest way to pay for everyday expenses and can be used as a backup for unexpected expenses,” Thiemann says. “A card is a great thing because it helps you build your credit — as long as you pay it.” Thiemann advises using credit to pay for small expenses that you can easily pay off at the end of the month and using debit to cover big expenses.
Before you go, check out our slideshow below: