4 Financial Skills That Millennials Must Learn

Staff Writer

As a generation, millennials are struggling. Many of us feel overwhelmed by student loans and some are having to put off major life events because of them. Because of this, our financial lives will likely be more challenging than our parents’ were.

 

That means we need to get smart about money and sharpen our financial skills in order to ensure we can life the lives we imagined.

 

Here are four financial skills that we will need to learn to succeed.

1. How to Live Below Our Means

One crucial financial skill that many millennials need to learn is how to be frugal. Many of us spend more of our incomes than we should. We love splurging on cool sneakers, designer clothes, the latest tech, and convenience foods. While picking up a Starbucks latte and a breakfast sandwich every morning is delicious and easy, it won't help you financially over the long run. Nor will always buying the latest iPhone.

It's important that millennials start living below their means so that they can invest in their future by paying down debt, saving for a down payment, or socking money away for retirement.

But being frugal doesn't always mean going without. It often means finding creative ways to get what you want for less money. For example, you can still drink Starbucks coffee - you just might have to make it at home.

One of the best ways to save money is to take a close look at your budget to see where you have room to cut back. If you're buying expensive clothing every month then find ways to get cool clothes by shopping at second hand stores or hosting clothing swaps with friends. If you always go out for dinner with friends, take turns hosting each other at your houses. Call up your cell phone and internet providers to see if you can save money on your bill. Chip away at your expenses and redirect that cash towards your savings.

2. How to Build Our Credit

Millennials often don't realize how important it is to have good credit. Many of us don't even have credit cards - a crucial component of building a good credit score. Having a great score is important because it can save you tens of thousands of dollars over the course of your life.

That's because every time you apply and use credit - whether it is when you get a new credit card, apply for a car loan, refinance your student loans, or get a mortgage, the amount of interest you will be charged will be determined by your credit score. If you have bad credit, you will pay a lot more in interest and that will add up over the life of a loan.

We therefore need to understand how our credit scores are calculated and work to improve them. One of the most important things we should do is always pay our accounts on time. But it’s also important to have a variety of different types of credit, to keep the amount of available credit that we’re using low, and to keep old credit accounts – since you get points based on how long you have had your accounts.

3. How to Tackle Student Loans the Right Way

Since student loan debt is one of the biggest problems affecting millennials, it's critical that we work hard to pay down our loans. But it's just as important that millennials are smart in how they do so.  Obviously, the first thing that we should do is always pay our loans on time since going into default could lead to getting sued or having your wages garnished. If you’re struggling financially, you’re far better off applying for an income-based repayment plan or deferring your loans.

But one of the most critical things we need to do is make sure we don’t have to pay more interest than necessary. Interest rates are at very low rates and if you have a good job and good credit, you could potentially refinance your loans and save thousands of dollars. Why pay more every month when you don’t have to? Refinancing won’t just save you money each month, but it will also allow you to repay your loans on a quicker time horizon. When you refinance, you can choose a term length as short as 5 years. The shorter the term, the lower your interest rate. According to SoFi, the leading student loan refinance company, the average borrower who refinances will save about $17,000 over the life of their loans.

4. How to Plan for the Future

You might be young and worried more about buying your first car than you are about saving for retirement, but it’s critical that you start considering it now. Compound interest means that the longer you have to save for retirement, the less you have to save overall.

Why not sock as much money away as possible? At the very least, take advantage of the matching 401(k) option if your company offers it. Don’t say no to free money.

LendEDU is a content partner of the Starkville Daily News providing personal finance news, expert commentary and coverage.

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