Did you know that one-third of us Gen Y plan to retire between the ages of 31-40? Not bad hey? And vastly different from the retirement dreams of our parents, where the golden number tended to be more around the 60 mark. If you’ve read WE’s recent post Is Gen Y Redefining Success? this will come as no surprise. We think differently, aim higher and strive for ‘betterness’ in all areas, now and in the future.
It’s not just about retirement strategies anymore. It’s the moments along the way, the journey of learning, improving and empowering. It’s about adding value to our everyday spending that slowly actions our wealth creation plans that inspire us today.
These moments start with understanding the fundamentals. Looking at and improving our daily decisions about money and building solid financial habits to support our growth. So in essence of mastering the basics, (and short of investment advice) here are the top money management tips to help us Gen Y fast track to early retirement, or as we like to call it, to financial freedom to live our best lives.
Toss the Credit
You’ve heard it before but it needs repeating. Credit cards need to go! Study after study is proving that even if you pay them off monthly (which a good chunk of us don’t) using credit turns you into a different shopper. One that is less price sensitive, more impulsive and more extravagant.
This is not a new concept and the evidence is abundant. In Donna Rosato’s article Life Without Plastic research shows that credit card shoppers tend to spend up to 25% more when doing their supermarket shopping than those using cash. That same research found that credit card bidders were willing to bid up to $60 for a sold out basketball game ticket compared to those bidding with cash who limited their bid to $28.50.
Another survey performed on college students at a campus bookstore found that paying cash helped them remember how much they had spent. Those that paid in cash remembered the amount 68% of the time versus only 35% for credit card shoppers.
As Erik Folgate explains in More Reasons to Cut Up your Credit Cards, there’s a tonne of psychology that goes into credit card use and issuers have mastered the art of making you feel powerful when using them. There is a reason they’re called ‘platinum’ ‘gold’ and ‘preferred member’ cards. There’s a false sense of cultural status associated with them. If you want to save money, cut them up. End of story.
Clear Personal Debt
This may be obvious but surprisingly still ignored by many. And minimum repayments won’t get you far either. If you really want to get ahead you need to get real. Sit down, work out how much you owe and create a plan to clear it fast. Yes, this will mean making some short-term sacrifices, being disciplined and a little hard work but if it were easy everyone would be sitting on a lovely little nest egg.
And if you’re clever about it, there are plenty of ways to cut down living costs and increase cash flow without feeling like you’re going without. You just need to get creative. Eliminate non-essential spending for a while or sell unwanted items on eBay. How about exploring less expensive alternatives to everyday purchases? Need some inspiration? Have a look at Live Well on Less .
Prepare (and stick to) a Spending Plan
According to Leo Babauta, in The 10 Key Actions that Finally got me Out of Debt, the word ‘budget’ tends to strike fear in the hearts of many readers. If you can relate, he suggests using the term ‘spending plan’ instead as it’s more about creating a plan to achieve a goal and taking action rather than focusing on limitations.
Either way, it’s essential. It not only helps you spend less than you earn but it will highlight your problem areas and give you a structure to follow to improve on them. Like Trent Hamm puts it in his article Preparing a Budget? – Ten Tips for Making That Budget Successful, it’s like using training wheels – it’s not an absolute solution to your financial situation but a guidance towards being able to effectively and naturally spend less than you earn.
Need help putting one together? Check out Sarah’s article on Why You won’t get Rich without a Budget and Download WE’s free Budget Planner.
Build in a Buffer
Whether you’re employed or about to venture into your own setup, having a contingency plan for the unexpected is crucial. A setback such as a job loss or decrease in income can put a huge amount of pressure to make ends meet without a back-up.
Although the amount needed will vary from person to person, Andy Clarke suggests building up and putting aside 3 months worth of income, especially for those about to embark on a new business start up. In his article The Importance of Building a Financial Buffer he explains deciding on how much money you’ll need to cover all your expenses for any given three months, and putting that money aside gives you choices, rather than leaving you vulnerable and exposed if things go haywire. Plus it will stop you from pulling out your (hopefully cut up) credit card.
Set Money Goals that Inspire
Not others but you, although if you can inspire others to take control of their finances you’re now speaking the WE language. Setting financial goals that fire you up will drive your passion to achieve them. When things get tricky, a goal like pay down debt is hardly the “hell yeah” you might get from one that’s driven by your core values. If becoming debt free means pursuing a dream of self employment for example, then that should be the goal and paying off debt the road map to achieving it, not the other way around.
Maximise your Earning Potential
Whether you’re running your own show or part of a larger group of talented individuals, there are many ways you can enhance your income capacity. In 5 Ways to Increase your Earning Potential, Kristina Cowan suggests continuing your education to increase your expertise in your field or picking up a part-time gig. Another great way is identifying an outside mentor that will guide and motivate you towards your best working self, as well as help you determine the skills and contributions you’ll need to move up pay brackets. It’s not just about seeking a raise anymore. It’s about putting yourself out there and creating opportunities.
Having the right mindset is also critical. Cowan urges workers to stop thinking as employees but instead think of themselves as ‘businesses of one’ and develop a plan for making or saving the company money. This demonstrates you understand how to run a business and can add value to the organisation.
Ok, so most of you are yawning right now. But seriously, this is important. You wouldn’t drive a car without insurance and it’s no different when it comes to your health, income and life. Just like the importance of a financial buffer, putting strategies in place to protect you and your family from an unexpected illness, injury or loss of income is non negotiable. Whether it’s life insurance you’ve been putting off or landlord’s protection you need to look at, the sooner you’re covered the better you will sleep at night knowing you’ve put all the necessary structures in place.
Getting the basics right is the fastest way to building wealth and supporting the life you want to live. Money management has changed and us Gen Y’s understand this. We’re embracing the small steps that help build a solid baseline and move us closer to our version of financial independence. Want to retire at 40? Great! Dreaming of travelling the globe? Amazing! It’s all about the everyday actions and spending habits you need to get right first.
Unsure of where to start? The team at WE live and breath financial success and have built a community of inspiring members that have mastered the basics and continue building wealth to live their lives to the absolute fullest. Want to be part of this awesome group?
Article by Evie Tramer
Disclaimer: all information contained within this article is of a general nature and should not be relied upon when making financial decisions. Please consult a professional financial advisor or planner (like us!) before acting.