Today there are roughly 75 million Millennial Americans ranging in age from their late 20’s to early 40’s, and many live with significant anxiety over current and future finances.
Do you count yourself among them? Well according to Pinnacle Wealth’s CEO and Founder Kevin Engbers, CFP®, CEPA®, Wealth Advisor, your angst is rooted in reality; Millennials like you have faced economic challenges not seen by the previous generation.
The Great Recession of 2008 put millions of Millennials entering the workforce behind the eight ball for years with depressed salaries and a tighter job market. They’re living the prime of their careers in a time of significantly inflated costs for everything from higher education to housing and health care. And many financial advisors including Engbers estimate they’ll need about twice as much as Boomers to retire securely.
In addition, Engbers believes Millennials have weathered a sea-change in employee benefits, with companies offering 401k retirement plans instead of lifetime pensions. “Many Millennials’ parents had pensions. They worked for the same company for years because that pension was based on your highest salary and the number of years at the company,” explained Engbers. “Add that monthly check to Social Security and many of them were basically replacing the income they had during their working years.”
“The difference from a financial planning perspective is a pension is guaranteed income, whereas if the stock market takes a dive, your 401k could be hit dramatically, and of course we’ve seen that happen.”
A Resourceful Generation
While acknowledging everyone’s individuality, Engbers says the Millennial clients he’s worked with are more independent, resourceful, flexible and better-researched than the generation before them. Above all, Engbers sees most Millennials rooted in core values that drive their decision-making. They want to live a purposeful, meaningful life.
“They’ll spend money now to have meaningful experiences now. A higher rent looks better to many if it means living in a community where they can be socially engaged. Renting looks better than a mortgage to some because they want to be free to pick up and leave if an opportunity arises. And as a whole seem to be generous in donating to causes they believe in.”
“For many of them, it’s about the journey over delayed gratification,” Engbers continued.
“Many want to have experiences throughout life, as compared to the generation before them that worked themselves to the bone to retire to Florida. They’ve said to me, ‘I don’t want to wait because my health may not be there. I want to enjoy the experience and travel today.’”
Those core values and passions also steer much of the Millennial investments he has seen.
“We see many Millennials wanting to do their own investing in companies that align with their core values. It’s very important to them, whereas quite a few of their parents often had mutual funds where investment decisions were made and taken care of for them. Quite a few of Millennials, on the other hand, prefer to make those decisions themselves to ensure they’re compatible with their core beliefs.”
Dispel Anxiety by Getting A Plan
Engbers says for many Millennials to overcome financial anxiety they should first identify the source of their anxiety. Is it your job security? Is it school loan debt? Is it the goals you’ve set for yourself and family?
Once a person identifies their anxieties, they can put a financial plan together that addresses those, while also supporting life goals and values and ensuring a stable financial future. He says they should be realistic when it comes to finances and stick to the plan.
“What True Wealth is to you is completely different than what it means to me. So, it’s getting people to focus on what it means to them. And I fully and passionately believe True Wealth is available to everyone, but people need to have a plan to get there.”
Start with A Budget
Engbers advises Millennials to save more. Start by itemizing all your debts and expenses so you can see everything at once. Look at your spending habits and see where your income is going. Does some of that need to be redirected?
“Again, many Millennials spend as they go, sometimes forgetting about the bills that are coming in. Not all do that, but many do,” says Engbers. “So, let’s establish a disciplined cash-flow system. Where’s the money in, where’s the money out? Most people don’t know where $300-$500 a month went.”
In terms of paying down debt, focus on the highest interest rates and smallest balances, addressing those first, then moving down to the next highest interest rate, and so on. But don’t forgo your ongoing savings commitments.
“Most Millennials have a better understanding of needing an emergency savings fund than the previous generation, but things cost more now,” says Engbers.
“We as wealth advisors used to say let’s have 6 months living expenses in reserves. But with rates coming up, many now say let’s have 3-4 months in a high liquidity reserve, with 2-3 months in a second bucket of investments.”
With many Millennials transitioning jobs at a much higher rate than Boomers did, many decide not to fully fund the 401k offered through their employer, according to Engbers. He calls it a missed opportunity and strongly advises full participation.
A Note of Optimism
Engbers often says it’s not what you make, it’s what you do with what you make.
“And that resonates with many Millennials because true wealth is everything money can’t buy and debt can’t take away. It’s experiences, it’s relationships.”
Engbers encourages Millennials to focus more on the long term and the future. Pinnacle Wealth offers clients a financial workbook to assist in bringing all the pertinent information together to develop a customized financial strategy based on personal goals and priorities.
“Understanding that you want to do some things now, let’s make sure you’re okay in the future.”
Engbers believes having a financial plan that budgets enough money to feed their passions will inspire Millennials to look at other areas and needs within their finances and stick to those long-term savings commitments.
“It has surprised even me – the ones who have stayed committed to saving have built significant portfolios. And it’s not too late.”
The opinions contained in this material are those of the author, and not a recommendation or a solicitation to buy or sell investment products. This information is from sources believed to be reliable, but Cetera Advisor Networks LLC cannot guarantee or represent that it is accurate or complete.
Kevin Engbers, CFP®, CEPA®, Founder, CEO, Wealth Advisor, Pinnacle Wealth, 612 E Tan Tara Circle, Suite 100, Sioux Falls, SD, 57108, (605) 271-6023.
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