Millennial Finance Guide: Achieving Financial Independence
June 24, 2022 | Andrew Wallace
Financial independence (FI): This term is often thrown around in the personal finance world but what does it mean? It is a term used to describe when someone has built up enough wealth to live without the need to work for an income. In other words, it means the ability to retire. Some people want to achieve this as soon as possible, others are more willing to work longer to reach this point. While many people strive to reach this point but continue to work even after achieving FI to continue building up their wealth. Whichever one sounds best to you is what you should begin working towards. Achieving this level of wealth takes time, and a lot of it. Time is a huge advantage we have being a part of the Millennials/Gen Z generation. Here is a quick guide to get you started.
I want to start off by saying that you don’t need to go to the extreme and never spend a dollar on something that makes you happy. Life is too short to save all your money and not have some fun. However, there are ways that you can do both. Sometimes this might mean making short-term sacrifices to reach your major life goals. The key is finding a balance between saving and spending, and prioritizing what is most important to you. After all, this is PERSONAL finance.
Step 1: Set some goals. It’s important to have something you are working towards to help you track your progress and stay motivated. Determine the lifestyle you want to live, the amount of money you need to live that life, and the time frame in which you want to achieve financial independence.
Write these goals down and review them often. It’s easy to get side-tracked in life but if you constantly look at what you want to achieve, you’re more likely to take action in order to reach the goals you set.
Working with a financial planner can help you determine your future income needs which allows you to figure out the amount of wealth you need to generate to have the ability to stop working.
Step 2: Set up a budget. You might have cringed at that one. The word ‘budget’ has such a negative connotation because people think of it as restricting. When in fact, it’s the exact opposite if used properly. Having a budget allows you to control where your money goes instead of letting it fly out the window while going 80 mph down the highway. It’s easier than you think too, here’s one way to do it. The first step is tracking your expenses for a month and comparing that to your income to make sure you aren’t spending more than you earn. If that’s the case, you really need to make some changes. Once you’ve confirmed you aren’t outspending your income, write a list of all your mandatory expenses (Netflix not included). These are things like food, housing, and utilities. This is the bare minimum you need to survive. Subtract this amount from your income. Now you’re left with all your ‘extra’ money. Break this amount into smaller chunks. Part of this will go to saving/investing, some to paying off additional debt, and the remainder is for you! Spend it on things that bring value to you. If traveling makes you happy, then use this money to travel. If sneakers are your thing, then buy that next pair of Jordans. After all, life can’t just be about socking money away, you need to enjoy it too.
Step 3: Start an emergency fund. This step is incredibly important, seeing that only less than half of Americans can afford an unexpected $1,000 expense. No one likes to think anything bad will happen to them, but truth be told, it’s not ‘if’, it’s ‘when’. Whether your car breaks down, a medical event occurs, or you lose your income, you need to be able to cover those costs. Start small and slowly build your emergency fund to equal 3-6 months of your expenses. This way you can be prepared for whatever life throws your way.
Step 4: Put your budget into action. Set up automatic transfers to your savings and investment accounts so it’s easier to stay on track. Having this automated means less work for you and makes it less tempting to spend everything you make.
You should track your expenses to ensure your budget is working for you. If it’s not, look for where adjustments can be made to better fit your life. You can track your spending on any budget app, an excel document, or even a simple notebook. Use whatever will help you stay on track.
Spend within your means. Playing ‘keeping up with the Jones’s’ is a sure-fire way not to build wealth. Beware of lifestyle inflation and stay away from high interest rate debt.
Step 5: Invest, invest, invest. Start early and invest as much as you possibly can. You can invest in the stock market, real estate, and yourself. It takes planning to know which strategy or combination of strategies are best for you. It’s important to keep in mind your time horizon, risk tolerance, and your needs when deciding how to invest your money. If your goal is portfolio growth, then investing in bonds and dividend stocks probably wouldn’t be right for you. The opposite is also true, if you’re seeking income, growth stocks wouldn’t make sense.
Step 6: Review your plan at least annually and update it to reflect your ever-changing life. Your plan will be your initial road map, but your life is constantly changing. There will be detours you have to take but that’s okay! As long as you make appropriate adjustments, you’ll be able to get past any hurdles in your way.
Being a young professional comes with big life changes like switching jobs, starting families, and buying houses. These events take preparation and that’s what the financial advisors and planners at CWA are here to help with! Utilizing a financial planner helps ensure you are investing in the right way for your goals. We can help identify potential tax-savings and investment strategies that may provide the most efficient path towards your version of success.
Let’s talk. We have financial advisors on our team, like myself, who love working with Millennials and Gen Z-ers who are eager to take their finances to the next level and build life-long wealth! Our comprehensive financial planning advisors will evaluate your unique situation and tailor a plan for you that includes investment strategies, debt management, cash flow analysis, and more. We walk through your goals with you and model them into your plan. Working with a financial advisor allows us to develop a clear path to achieving your goals.