YOUNG PEOPLE, AVOID FINANCIAL PERILS IN TWO WAYS
Young investors are prone to financial pitfalls, which is understandable because of their youth. Based on FINRA Foundation Financial Capability Insights, a research by the FINRA Investor Education Foundation, millennials are struggling financially and have low levels of financial literacy. Having said that, young investors can avoid financial pitfalls through budgeting and planning their future.
The FINRA study revealed approximately 46% of young people are worried about having too much debt obligations, and 23% of them spend more than their salary. Yes, it is difficult to live within (or below) your means, but this can be done by creating and managing your future income and expenditures.
There are various softwares designed for monitoring spending, including Mint.com. Another way is by listing down and categorizing all your future salary and expenses either in a notebook or spreadsheet. The first thing you should do is to add all your income. Next, estimate expenses. And lastly, deduct your total spending from the total income. Make sure your budget is flexible and you know your priorities.
Planning ahead means establishing your emergency cushion and preparing for retirement. The study unveiled those who take home less than $50,000 a year are much less likely to form retirement accounts, investment accounts, and emergency fund. Less than 30% of lower-income young professionals opened retirement accounts, about 12% created investment accounts, and around 22% have funds for the rainy days. For people earning more than $500,000, around 62% for retirement accounts, less than 40% for investment accounts, and almost 50% have emergency funds.
Both emergency cushion and retirement have investments, which carry a certain level of risk. The research indicated one in four millennials is willing to take on risk, since they are in the early life stages, meaning they have longer time to recover from volatility in financial markets. Forget not to settle your debt obligations. Remember, it won’t make sense to max out your retirement plan at the expense of repaying debts.
Once you have started budgeting and planning for your future, you can evade these financial risks little by little. But you still need to seek professional help and equip yourself with sufficient knowledge in order to handle your finances with ease.