Troubled by your finance? Rest assured you’re not the only one. Employees from the Millennial generation are the group most troubled by financial stress, according to a recent study led by PwC. Retirement, buying a house, having kids, saving to start a business, those are a few thoughts that populate the Millennial’s mind.
The biggest issue for Millennials is the student loan, because how can they plan for the future when they still have a huge debt to pay? Should they put every dream on hold?
“It’s really important to plan for the future and dream big, reassures Bola Onada Sokunbi, a money coach from New York. Never stop dreaming. Instead, it’s important for Millennials to create a strategy for their debt and for their future selves, at the same time. Since the biggest debt weighing Millennials down is student loans, I would suggest they begin paying them down as soon as they gain employment.”
But getting rid of a student loan debt is not that easy. It requires a strong strategy, a lot of willingness, and doing research about one’s debt. According to the expert, the first steps are finding out how many loans they have, with which creditors, what the interest rates are, and stop spending on credit.
“If they have several loans, they may want to do some research to see if there are penalties or benefits if they consolidate their loans, explains the money coach. Will they be charged consolidation fees? Will they get lowered interest rates? Is consolidation worthwhile?”
Though paying the minimum required seems like an easy strategy, the expert recommends paying as much as possible quickly to get the balances down. To do so, there’s nothing better than a monthly budget. It would require factoring all their debts into the budget, in addition to their frequent monthly expenses, and figuring out where they can cut back to see what extra funds they can funnel towards their loans.
I suggest leaving a little wiggle room in the budget to do things they enjoy, says Sokunbi.
Saving while paying down a debt
Though paying student debt is a priority, having a buffer for emergencies and to plan for one’s future by saving for retirement is still very important. To start, while paying down a debt, the money coach recommends building an emergency fund of at least $1000, which they’ll be growing every 3 to 6 months. This fund will be useful in the event of an emergency, such as a car break down or medical emergency.
Those who have saved a lot of money and won’t touch those savings to pay off their debt are wrong, according to Sokunbi. She recommends keeping enough for emergencies and putting the rest towards the debt.
“This bulk of cash sitting in your bank account isn’t really doing much for you, she says. Even the best saving accounts are earning less than 1% interest and the average credit card interest rate is around 10 to 15%, so you are actually losing money.”
Saving for retirement is probably the least of the worries of any Millennial with a debt. However, contributing to an employer’s retirement plan (e.g. 401k) can be very advantageous. Besides the pretax benefits (it lowers taxable income), they can also take advantage of the company match (many offer one), which is free money.
As much as dealing with a debt alone can be easy for some, others need help. It might seem like a wrong investment, but hiring a money coach might be the right solution for those who have no clue on what to do or where to start. According to Bola Onada Sokunbi, a money coach is much more than sitting down with someone and having them build a get out of debt plan. “It’s a partnership that helps you harsh out what you truly want of your life and how to use your money to get you there”, she explains. Support, guidance, understanding one’s spending habits, creating a long term strategy, developing a positive mindset about money, and learning to forgive yourself; these are the few things one can gain by hiring a money coach. In some, it’s a short term investment for a long term result.