Discover how to overcome common financial challenges and grow rich by making 5 important decisions.
A Money Girl podcast listener named Ben wrote:
"Thank you for doing the podcast, it’s been very helpful to me. What advice do you have for people in their 20s that will make a huge difference later on and ensure a lifetime of financial success?"
In this episode I’ll discuss some common financial challenges that young people face and how to overcome them. You’ll learn 5 important decisions that Millennials, or anyone who’s just starting out, must make to grow rich.
5 Decisions Millennials Must Make to Grow Rich
If you were born after 1980, you’re part of the Millennial Generation and are between the ages of 18 and 33 as I’m writing this article in 2014. You’re also known as Generation Y because you came after Generation X, which is my generation. Gen X are people born from about 1964 to 1980.
The Millennial Generation has some other not-so-flattering nicknames. It’s been dubbed the Boomerang Generation because of its members' propensity to move back home with their parents, perhaps due to financial hardships. It’s also been dubbed the Peter Pan Generation, which refers to a perceived immaturity or unwillingness to grow up exhibited in Millennials' tendency to delay starting a career, getting married, and having children.
Now, before you think that everyone’s pegged young folks as slackers, various surveys and studies about Millennials have also shown that you’re an incredibly educated and optimistic group. But that education comes at a cost - as so many of you who are burdened with huge amounts of student loan debt know all too well. Additionally, many Millennials were traumatized by the last recession, don’t like the stock market, and are leery of investing.
No matter if you agree with these Millennial characteristics or feel stereotyped by them, here are 5 decisions that you, or anyone who wants to achieve financial success, must make in order to grow rich:
Decision #1: Live Within Your Means
One of the most important decisions to make when you’re starting out is to live within your means, or never spend more than you earn. It sounds so logical and simple, right? But unfortunately, it’s incredibly easy to overspend when you make credit card charges that you can’t pay off in full every month.
Your life may not be as lavish as your parents', your high-earning friends', or your friends' who live beyond their means. That’s OK. With hard work, smart spending, and consistent saving, you can achieve your financial goals and dreams. No one said we were entitled to have everything we want right out of the gate.
Living within your means comes down to aligning your spending with your values. So think about what you really want to do or have and make sure you’re allocating your money there, and never spending mindlessly.
Shifting into conscious spending and saving is a simple but powerful milestone that’s required to grow rich. I discuss the psychology of spending and how to set your priorities in Chapter One of my book, Money Girl’s Smart Moves to Grow Rich.
Decision #2: Leverage the Power of Time
If building wealth is one of your goals, the second decision you must make is to value your time and put it on your side. Here’s why that’s so important:
Let’s say you go out to lunch with coworkers every day and spend $15. That’s almost $4,000 per year that you could be funneling into a retirement account if you brought leftovers to work instead.
If you’re 25 years old and invest $4,000 a year in an Individual Retirement Arrangement (IRA) or a workplace 401(k), you’ll amass a surprisingly huge nest egg. With an average annual return of 7%, you’d have close to $1 million by the time you’re in your mid-60s.
Now I’m not saying that you should never go out to lunch or spend money on entertainment. My point is that you should never spend habitually or unconsciously without understanding the security and future financial freedom that you may be giving up if you invested that money instead.