5 Financial Tips for Us, Broke Millennials

Financial literacy is a topic that is infused with a lot of hidden privilege. With many high schools historically not tackling the topic, this responsibility either falls to the young person to discover on their own or advice from their families. This means, as with other social issues, an initial lack of financial knowledge from a parent or guardian has a greater potential to compound and hurt a young person trying to sort through how to make the right financial decisions moment-to-moment.

I fell into this category. My parents did their best to supply me with some basic financial literacy, but I didn’t know what questions to ask and I’m sure I left important information on the table. For example, I didn’t realize just how important it was to start an IRA early in life versus later in life. If I had known, I would have started one when I started working at 16.

After graduating from college with my B.A. in 2015, I then spent a year working in AmeriCorps, another year in AmeriCorps VISTA, and then two more years in graduate school earning my M.A. Let’s just say, I didn’t have unlimited amounts of cash. So I write this post from an understanding that even if you are working up the “success ladder,” chances are you still don’t have a ton of money.

While I won’t be diving into all of this, what about the additional system financial challenges facing young people? Ever inflating living costs, high underemployment, a lack of living wage jobs, etc. Even if a young person has a high level of financial literacy, there is still a high likelihood that they may not have the level of income to make the financial decisions they need to make.

Below are five financial tips for young people who are trying to make the best decisions they can with the money they have.

1. Start an IRA now — even if you can’t invest a lot in it.

Like I said above, I wished I would have started an IRA much earlier than when I did. I wished I knew a lot more about compound interest — like seriously, it’s incredible!

There’s two types of IRAs — Roth and Traditional. Your financial strategy will determine which one you choose.

The Traditional IRA is a tool for reducing the tax burden of your investments in the present day. When you invest money into a traditional IRA, you are investing money pre-tax from your paycheck, which means the amount of money that will be taxed from your paycheck is reduced. For example, if you bring in $2,000/month pre-tax and you invest $50/month into your traditional IRA account, this will reduce the amount taxed to $1,950/month.

The Roth IRA is personally my favorite of the two. Rather than providing a pre-tax benefit, it will provide a tax benefit once you retire. When you invest money into a Roth IRA, you are investing money after it’s been taxed and your paycheck has been deposited into your account. The benefit of this is that once you turn 59 1/2 years old, you can withdraw this money tax free — yes, even on the interest you’ve accrued. With the benefit of decades of compound interest, this is an incredible tax savings!

I don’t have a lot of money leftover to invest after I pay for my living expenses, but I make sure to throw something into my Roth IRA each month.

2. Never buy a brand new car

I get it. New vehicles look nice, but they are a terrible investment. Let’s say you go out and buy a $25,000 new vehicle tomorrow. In one year, that vehicle’s resale value will depreciate by 20–30%! There are much better ways to go about obtaining a vehicle.

A couple options include:

• Buying used (even if it’s just one year older). You will be bypassing the worst of the depreciation happening in that first year, with a vehicle still may only have 10,000–20,000 miles on it.
• Lease. Leasing a new vehicle is a great option if you don’t want to buy a vehicle. The monthly lease cost is essentially the depreciation amount, plus tax and interest. This may be an affordable and easier option for some young professionals, that has the additional benefit of avoiding costly repair costs.
• Just don’t. In many urban areas, public transportation is becoming more and more sufficient to meet the travel needs of residents. The cost of a bus pass or subway card will often be cheaper than monthly vehicle payments and maintenance.

3. Build an Emergency Fund

Post-graduation in 2015, I didn’t realize just how important an emergency fund would be. After graduation, I immediately moved to a new state (Florida), started an unpaid internship, and then did a year of AmeriCorps. I certainly wasn’t rolling in extra money. In fact I was spending down the surplus I had built up while working during college. By the time I finished that year, I moved back home to Illinois with no job and very little money — none of which I ever expected to have to do.

Now, four years later and in the midst of a global pandemic and ensuing recession, I am thankful I’ve built up an emergency fund. My emergency fund is currently modest — around $3,500. It isn’t much, but it would cover about three months of living expenses if I were to lose my primary source of income tomorrow.

While my emergency fund is readily accessible, I do not keep everything in one source. Making up this emergency fund is a basic savings account, a high-yield savings account, savings bonds, and cold, hard cash. How you keep your emergency fund isn’t too important, as long as it remains readily available — i.e. not invested in the stock market.

4. Utilize high-yield savings accounts

This is a tip I see in so many financial articles and for awhile I wrote it off. However, I fully embrace the idea of making my money work for me — even if it’s just a few dollars more.

I currently invest part of my emergency fund in a high-yield savings account with Marcus by Goldman Sachs. While the interest rates for savings accounts have dropped nationwide, most are still hovering around the 1.25%-1.50% range (Marcus by Goldman Sachs is currently at 1.30%). Comparing this with the 0.15% interest rate I’m getting on my basic savings account, the interest rate on a high-yield savings account blows it out of the water.

However, I say this with a pinch of realism by reminding you that although the interest rate is 10x the normal rate, you still would have to save a good chunk of money to reap any large rewards. I didn’t promise all of these tips would net you a ton of cash, did I?

5. Move your money to a credit union

I can’t believe I didn’t know what a credit union was until recently. The difference can be simply paired down to: a commercial bank is a for-profit entity and a credit union is a non-profit entity. This does not mean that a credit union can’t make a profit. It means that rather than distribute this profit to shareholders like a bank does, a credit union puts this profit back into the business (oftentimes in the form of lower interest rates or member dividends).

This advice could be utilized in tandem with the high-yield savings account strategy as many credit unions also have high-yield savings and checking accounts.

These are just five financial strategies, but there are plenty of other tips out there that can be well worth the time to research. Do your homework and find what works best for you. The goal in your 20s is to build toward your future — whatever you may want that to be — and the best way to do that is to utilize your money as efficiently as possible, no matter how much you may be working with.

This article was part of a test to determine the viability of Medium’s Partner Program. Read my brief report on my findings!