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Do you have a hard time discussing finances? You’re not alone. This topic has historically been somewhat taboo and even though Gen Z has already significantly shifted societal conversations to be more open, for some reason many people of all generations still struggle to speak up about money.
Why is this one of the molds that hasn’t been broken yet? Well, if you were born between 1997 and 2012, then you’ve seen a lot happen in the United States economy already. The 2008 financial crisis and even the COVID recession probably impacted your views on money while you were growing up. Now, we’re all living through record-high inflation and frequent ominous predictions about the stock market.
This isn’t the best environment for fostering positive perspectives of the financial world. In fact, according to a study from Intuit released earlier this year, nearly two-thirds of Gen Z say they don’t even feel confident managing their own money. To make matters worse, our digital world has created a culture of comparing yourself to the unrealistic standards seen on social media. Being bombarded with posts of others posing with their expensive belongings and off on lavish excursions can easily make an average twentysomething feel behind in their own lives. More than half of those surveyed by Intuit even said they’ve lied about their finances to try to keep up.
If that sounds familiar to you, please know that you don’t have to carry on this way. There are plenty of educational resources you can consult and financial advisors who will listen to you without judgment. Managing your money can seem intimidating at first, but there are a few simple tasks you can start with that will immediately make an impact on your financial confidence and your situation overall.
#1 Create a Budget
Many young adults have yet to try putting together a budget for themselves, as reflected by the Intuit survey. If you fall into that category, budgeting is a great place to begin. Start by assessing how much you typically earn each month or pay period.
Once you have a total income, review your necessary expenses, like rent or mortgage, utilities, gas, other bills, and food. The next step after going through your necessities is to look at your daily spending. To do this, scan your bank and credit card statements from the past few months. This process often sheds some light on areas where you may be able to cut spending going forward.
Finally, think about your financial goals and figure out what kind of budget will best help you stay on track to reach them. A simple Google search will reveal a multitude of valid budgeting methods, but it’s important to remember that these techniques and templates are not one-size-fits-all. Make a budget that fits your specific needs, abilities, and lifestyle. Getting it right may take some mixing and matching and a little trial and error. There is no shame in that! Whether it be in a paper journal, on a spreadsheet, or using a budgeting app, the important part is that you start tracking the money coming in and going out so that you have a better view of your big financial picture. Also, keep in mind that this isn’t a lifetime plan. In the future, you will likely need to adjust various aspects of your budget multiple times.
#2 Start Investing
Now that you have a budget, you also have a better idea of how much you can afford to invest every month. You may be wondering why you should bother with setting long-term financial goals and investing in your future instead of focusing on what you need and want at this moment. Or, you simply may not know how to start investing. That is normal! Two-thirds of Gen Z is in the same boat.
Despite what you may have been led to believe, you do not have to be rich to invest. You can get started today with just $5! Why would you? Well, the earlier you start investing and the longer you continue, the more time you give your money to multiply – thanks to compounding interest.
Before choosing your investments, it’s important to educate yourself on the risks. One basic principle is that stocks are riskier than bonds. With stocks, you own a small portion of a company, whereas with bonds you're loaning a company or government money. Stocks can be risky because the market tends to be unpredictable, but they can have a bigger payoff over time than bonds.
This is why it’s a good idea to invest in both stocks and bonds so that you have a diversified portfolio. Striking a good balance means that when some of your investments aren’t making money, others likely still will be. However, most experts agree that the younger you are, the more risks you can afford to take when investing. The closer you get to accomplishing your long-term financial goals, like saving for retirement, the more you’ll want to play it safe.
Whatever you do, don’t make impulsive decisions based on your anxieties. It is normal for stock prices to consistently move around, and you’ve now learned enough to be a smart investor. Those with diversified portfolios working toward long-term goals can weather most storms the stock market throws their way. There’s usually no need to shift your investments around just because the water is getting a little choppy. Especially when you’re younger, staying the course can give your money a chance to recover over time.
So, you’re ready to try your hand at investing? A great place to start is with retirement savings, either through your employer’s 401(k) or 403(b) plan, or you can open your own IRA. There’s no reason you can’t do both!
#3 Lower Your Debt
Again, having the foundation of a budget allows you to further expand your money management skills. Now, you know how much extra cash you can put toward debt repayment. Most people have some debt, for example, credit cards or student loans. If you don’t, then you may be doing better financially than you realize, and you can skip this section.
For the rest of us, there are two especially popular options for lowering debt: the snowball method and the avalanche method. Both help you organize your debt so you can decide what to focus on. Regardless of which option you may choose, first and foremost you must pay the minimums on every card and loan each month.
To get started with the snowball method, list out all your debts from smallest to largest balance. When you go to pay your bills next, put more money toward the smallest balance. The idea is that the faster you pay off balances, the more motivated you will be to keep going. Once the first balance is paid off, shift your focus to the next-smallest, and so on until all your debt is gone!
The snowball method is great if you need some encouragement, or you have quite a few smaller debts. However, it could cost you more money overall. This is why the avalanche method focuses on interest rates. To begin with this option, list out your debts based on how much interest you’re paying from highest to lowest, then put more money toward that first balance on said list. Focusing on the debt that costs the most to carry is a great strategy, although the downside is that if your highest-interest debt is attached to your biggest balance, it could be a long time before it feels like you’re making progress.
Most importantly, don’t be discouraged or fearful that you’re not making the right choices! Holding onto negative emotions regarding your finances can prevent you from building solid money management practices that lead to lifelong success. Also, please do not be ashamed to seek advice from a parent, mentor, or professional. Despite the vast number of resources available to us on the internet, nothing compares with speaking to an actual person. A good fiduciary financial advisor will have your best interest at heart, share their wealth of experience and knowledge with you, and set you up with a personalized plan that will help you reach your goals.
