Overview
Millennials and Gen Z are confronted by a competitive job market, a housing affordability crisis, and a cost-of-living crisis. During these challenging times, young adults need smart financial strategies to help guide them toward a better financial future. In this article, we will explore 10 financial tips for millennials and Gen Z.
Tip #1: Create a Budget
Unless you have a budget, you cannot properly manage your cashflow. It’s essential to pick a budget plan and stick with it to see the best long-term results. There are many different budgeting systems people use, such as the following:
- Pay yourself first: The trick is simple. As soon as you get paid, put some of the money into your savings account. Then you can spend the rest on needs and wants.
- Zero-based: Assign every single dollar of your income to a specific purpose.
- 50/30/20: Spend 50% of your income on needs, 30% on wants, and 20% on savings and debt repayment. Adjust the percentages as needed.
- Envelopes: Label envelopes in accordance with the spending categories e.g. rent, groceries, gasoline, etc. Once the money in a given envelope is spent, you cannot spend any more money in that category that month.
Choose a budget plan that fits your needs and maintain it consistently until your financial situation improves.
Tip #2: Start an Emergency Fund
Given life’s unpredictable nature, you need an emergency fund to safeguard your financial future against unexpected setbacks like a job loss, car repairs, an illness, and more. This will help ensure some peace of mind. According to one survey, almost half of Canadians (49%) have no savings for an emergency. This means they would have great difficulty coping with life’s inevitable storms.
To build an emergency fund, start setting aside a small amount of money on a weekly or monthly basis. However small the amount, it will accumulate over the long term. For example, $50 set aside per week would result in $2,500 set aside in 50 weeks. Start small and go from there. Consistency is key, rather than intensity.
Tip #3: Raise Your Income
In the digital age, there are many opportunities to increase your skills and desirability in the job market. For example, you could take online courses or earn online certifications to upgrade your skills. You could develop a skillset in data science, UX design, software development, cybersecurity, and many other fields. By acquiring new skills, developing a portfolio, and accumulating work experience, you could have a new and lucrative career in no time!
Additionally, you could take on a part-time gig or a weekend gig to supplement your income.
You could also generate passive income via investments, digital assets, selling art or e-books online, and so on. E-commerce platforms give you access to potential customers, while social media allows you to market your products and services to a large audience. Be creative in your approach.
Tip #4: Start Planning for Retirement Early
Are you in your 20s or early 30s? Do you think you’re too young to worry about retirement? Think again. The time to start planning for your retirement is now. This is when your time advantage is at its maximum. By saving and investing money now, you can get a head start on your retirement savings and maximize the compound interest and return on investment over the coming years and decades. Educate yourself on your options. Having a Registered Retirement Savings Plan (RRSP) is crucial and allows you to grow your savings and investments tax-free. In addition, contributions you make to your RRSP account(s) are tax-deductible, allowing you to reduce your overall tax burden. This could result in huge savings over the long haul.
Tip #5: Automate Your Bill Payments
Do you worry about paying your bills on time? Do you tend to forget important due dates? Automating your bill payments could go a long way toward ensuring that you always make your payments on time, without even having to think about it. Go on your service provider’s website, the billing section, and check whether there is an option to sign up for a pre-authorized debit plan or a pre-authorized payment plan. It is likely possible to automate all or most of your bills, such as rent, phone, Internet, hydro, and more.
Make sure that you have sufficient funds in your account to cover any upcoming payments. Lacking sufficient funds could result in non-sufficient funds (NSF) fees, which could be costly and could negatively impact your credit score.
Tip #6: Work on Your Financial Literacy
According to one survey, the majority of Canadians say they did not receive financial literacy education in school and that it would have helped them manage their money with less stress. Therefore, it comes as no surprise that so many struggle with their money management skills. To get started on improving your financial literacy, consider reading educational blogs, books, taking online courses, or even earning certifications in your free time.
Financial literacy is a journey, not a destination. Maintaining an ongoing learning regimen will ensure that you optimize your financial knowledge in the long run.
Tip #7: Work to Improve Your Credit Score
Your credit score could be a crucial gateway to accessing favourable loan terms and even getting approved for more desirable rentals or mortgages. There are many potential ways to improve your credit score, but one of the main ways is by paying your bills on time. Tip #5 looked at automating your bill payments to help you avoid missed or late payments. Additional tips include maintaining a low credit utilization ratio (below 30%), requesting a credit limit increase without a proportional increase in spending, maintaining low credit card balances, and paying off debts.
To monitor your credit score and catch mistakes on your credit report, sign up for Credit Verify. The registration process is quick and takes place online.
Tip #8: Reduce Your Variable Expenses
When you established a budget plan, you might’ve noticed that you had some recurring frivolous expenses. If you have any frivolous expenses, consider reducing them. For example, you could eat out less frequently, cook at home, avoid buying coffee at large coffee chains, shop at thrift stores, avoid splurging on new technology, and so on. Examine all the different ways in which you could minimize your pleasure spending while prioritizing your necessary expenses. Some amount of pleasure spending is necessary in everyone’s life. The key is the optimization, not the elimination, of spending.
Tip #9: Optimize Tax Deductions
As briefly mentioned in tip #4, your RRSP contributions are one way to lower your overall tax burden, as RRSP contributions are tax-deductible. Make sure you have the appropriate RRSP contribution receipts on hand, whether from your bank or from your plan provider, in case the Canada Revenue Agency asks to verify the contribution amount you stated on your tax filing. The tax deductions that result from RRSP contributions could result in very significant savings by retirement age.
Additionally, make sure you apply to applicable tax credits and breaks. For example, individuals who have children, spouses, or disabilities, could potentially qualify for tax credits. Individuals who earn a low or modest income might also qualify for certain benefits. Double-check whether you fit any of the criteria for any of the tax credits provided by the Canadian government. Refer to Canada’s government website for additional information.
Tip #10: Understand Basic Investing Strategies
Finally, if you want to be financially literate, you need to understand the basics of investing. For the average investor, the optimal strategy could be relatively straightforward: purchase index funds such as the S&P 500 and let the interest compound until you hit retirement age. Additionally, if your employer offers any group investment plans, make sure you participate to optimize your savings and investments.
Setting aside a small amount of money on a regular basis and investing it via accounts like the Tax-Free Savings Account (TFSA) or the Self-Directed Retirement Savings Plan (SDRSP), could be the crucial step to building a more reliable financial future. Start small and build your knowledge.
Final Thoughts
Canadian Millennials and Gen Z are facing tough economic times amid the housing crisis, the cost-of-living crisis, inflation, high interest rates, and limited availability of high-paying jobs. Despite these persistent challenges, young adults can utilize certain financial strategies to help optimize their long-term financial outcomes.
Adulting is hard. If you ever face unexpected expenses and cannot cover them, apply for a personal loan online via Friendly Lender. We offer a simple and quick online application process, without a credit check. Personal loans can help you cover immediate expenses and close a gap in cashflow.
