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How to be a financially literate millennial

By | August 23, 2018

Are you a financially literate millennial? Despite headlines forecasting impending doom for millennials who are not saving enough to buy a home and for retirement, recent research has revealed more than a third of Aussies aged 22-37 are saving to buy a property within the next three years.

Altitude Advisory Business Advisor Jack Thiel has this advice for a generation that faces more financial challenges than their parents did.

Why not have a house and smashed avocado? It’s not that hard, it just requires a basic understanding of money and a bit of grit.

Why the grit? Well, because it’s a lot more fun to spend money than to save it. Below are a few of the key concepts which helped me to: move out of home by 21, buy a house by 24 and eat smashed avocado whenever I please.

First things first, you need a budget

I only know one other ‘millennial’ who has a budget… that’s my sister. Why do we have budgets? Because life has a lot of costs, many of which are unpredictable and unexpected.

Preparing a budget ensures you are thinking about these things and providing for them ahead of time. It basically means that if you’re sticking reasonably close to your budget you’ll be fine when that unexpected knee surgery comes up… you won’t be sitting in a public hospital waiting weeks to get the work done or worse, unable to afford it altogether (I’m not a health insurance expert, but you get the point).

Not to mention, you won’t have to publicly complain that the government isn’t doing enough to help… go help yourself!

“Don’t tell me what you value, show me your budget, and I’ll tell you what you value.” – Joe Biden (smart guy).

Stay out of debt

Credit cards
Do not think that those little ‘points’ you earn with every dollar you spend on your credit card are the credit companies being nice… they know what they are doing. Firstly, you spend more with a credit card because you don’t notice it. Secondly, all they need is for you to miss one payment and those massive interest rates kick-in (say goodbye to any benefit those points provided).

If you do happen to have racked up a decent credit card debt then listen to and follow this advice:
A. Find a company providing an interest-free card (say 24 months interest free).
B. Sign up, get the card.
C. Pay-off all your previous credit card debt.
D. Cut up the credit card, get a debit card and live a life you can afford!

Loans
If someone ever tells you, “oh just get the new one, you need a loan to get your credit rating up anyway” then please give them a nice ol’ slap across the cheeks because that is some seriously dangerous advice.

Firstly, loans are not good, they are not fun and they certainly are not something you want to get yourself into when you don’t need to. There is an exception to this and that is your house.

My Dad always taught me that a house is different:

“When you take out a loan for a house you get an investment and you want it to go up in value, but if it does drop, at least you still have a roof over your head.” – Dad (clever man)

Manage your risk

High risk, high reward is true. Most of those millionaire and billionaire entrepreneurs are serious risk takers majority of the time and have usually (on multiple occasions) risked everything to get where they are.

There is nothing wrong with following in their footsteps, but understand it won’t just happen and it could cost you a whole lot more than you expect (oh, and say goodbye to having a life, so you’d better enjoy what you’re doing).

When we talk about money the only thing other than risk and luck that can increase your returns is hard work. So work bloody hard so you don’t have to take so many risks! Do not chase get-rich-quick schemes, understand the power of getting rich slowly.

Getting rich slowly: The power of compound interest

This right here is what compounding looks like with annual deposits of only $3k and returns of 5%:

As you can see the initial growth is slow and you may feel like you’re not getting anywhere, but one day down the line you will hit a type of “inflection-point” where you really see the benefits.

At this point growth can continue even without further investment from yourself. This is making your money work for you. If you don’t believe me, take the word of someone you can trust:

“Compound interest is the 8th wonder of the world. He who understands it, earns it, he who doesn’t, pays it.” – Albert Einstein (smart guy)

It is important to note the “he who doesn’t, pays it” part because this graph can also apply to your debt. If you don’t get on top of it soon enough the interest will be earning interest and it will soon become an unfathomable challenge to pay off.

This article first appeared in Jack Thiel’s blog page here.

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