Saving money and building wealth has become difficult in recent years due to the rising cost of living, too much debt, and bad money habits. The lack of savings means you cannot invest in your future, save for retirement, and build wealth. The good news is that I created a list of the 24 best financial tips for millennials to build wealth which you can start as early as today.
If you are struggling with your finances and don’t how to revive your finances, you are not alone.
According to a survey conducted by Forbes, 28% of Americans across all generations have less than $1,000 saved including personal savings, emergency funds, non-workplace retirement accounts, and investments. The same statistics show that Gen Zers come on top with fewer savings at 32%, followed by Millennials at 31%, Gen X at 27%, and Baby Boomers at 20%. The alarming part is that almost 80% of Americans plan to save the same amount or less than they saved in 2023.
The leading cause of lack of savings among Americans was the rising cost of living for 66% followed by debt repayments at 31%.
If you are a millennial or a baby boomer, you must prioritize your financial wellness to ensure long-term success and avoid financial hardships during retirement.
Here are 24 best millennial financial tips to improve your financial situation and build wealth.
1. Understand the power of compound interest
The first and most important financial tip for millennials to build wealth is understanding the power of compound interest. Why compound interest? Compound interest helps you build wealth more easily and quickly as you earn interest on the principal and accrued interest. Before you rip the benefits of compounding interests, you must understand that time makes all the difference.
Start investing as early as possible to take advantage of this financial tip for millennials who want to build wealth. Even if you have a few dollars to invest such as $50, buy cheap investments and allow your money to grow over time. For example, if you don’t have enough money to buy a full share of a stock, buy fractional shares. This simple financial tip for millennials will allow your money to compound longer and yield a higher return on investment. As a millennial, think of the long-term because that allows your money to compound and grow exponentially.
2. Create and stick to a budget
Building wealth requires a solid financial foundation to avoid financial mishaps. Creating a budget is one of those financial steps you must take to build wealth. A budget helps you understand how much you make, all your expenses, and your savings potential. You can also use a budget to build wealth as it can help you see where you are overspending and ways to cut back on your expenses to boost your savings and invest more money toward your future.
Read more: 7 steps to make a personal budget
3. Build an emergency fund
Saving for emergencies is the best financial tips for millennials to build wealth. Even if you are not a millennial, you need an emergency fund. Most people ignore setting aside money for emergencies until they are pushed onto the streets. I hate to tell you this, but you need an emergency fund before any other financial decisions such as contributing extra money toward retirement savings or investing.
An emergency fund is a safety net to fall back on when you hit a financial wall. Financial hardships such as job loss, expensive medical bills, home repairs, etc., are always lurking in the background and waiting to strike. Emergencies also happen at the worst possible time. That is why you need an emergency fund to cover expensive emergencies. Without an emergency fund, you might need to liquidate your investments at a huge loss to take care of emergencies.
An emergency fund will provide a financial cushion for unexpected situations when you need it the most. Save at least 3 to 6 months of monthly expenses in your emergency fund. You can save your emergency funds in a high-yield savings account which allows you to earn a decent return on investment instead of keeping the money in a checking or a traditional savings account where you earn almost zero dollars.
Read more: 4 ways to save for emergency fund fast
4. Watch spending habits
Most millennials never build wealth because of bad money habits such as overspending and impulse purchases. For example, many consumers update to the latest phone models yearly without a reason to switch. You cannot build wealth while spending all your wages on the latest iPhones, watches, and similar electronics. Besides people waste their money on impulse purchases daily which hinders their ability to invest in themselves and build wealth.
If you are a millennial, the best financial tip to turn your financial situation around is to watch where your money goes. Make sure you are in control of your spending habits and only buy the things you need. Then, invest the money you are not spending. Try to follow budgeting rules such as the 50-30-20 budget rule or try a savings challenge. Any strategy that helps you to save money, start using it in your financial planning strategies. You can always buy expensive stuff in the future after you have built wealth.
5. Prioritize paying off debt
If you have too much debt, forget about your financial dreams. One of the biggest reasons people millions of millennials are struggling financially is due to too much debt. Debt alone can ruin your life and prevent you from achieving your financial goals.
If you are a millennial and want financial stability, prioritize paying off your debts. The sooner you get out of debt, the faster you can build wealth.
Being debt-free is one of the best financial tips for millennials to build wealth as it frees money you can invest in your future to build wealth. Too much debt means you are working hard only to benefit the lender.
You can pay off your debts by using the debt avalanche method where you eliminate your debts starting with the highest-interest debt first. Other debt management strategies such as debt consolidation, refinancing, and negotiating lower interest rates can all help you get out of debt faster.
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6. Diversify your investment portfolio
One of the most important financial tips for millennials to build wealth that is often neglected is diversification.
While there are many ways to invest money, staying diversified is a great way to protect your finances during the economic downturn. You need to keep the money in unrelated investments to ensure all your money is not exposed to risk.
To achieve maximum diversification, allocate your money to different assets that yield ROI such as stocks, bonds, stock funds, and related fixed-income assets such as high-yield deposit accounts. If one of your investments performs poorly, other investments in other sectors will do well.
7. Take advantage of your employer’s retirement savings plans
Retirement saving is one of the fastest ways to build wealth. Saving for retirement comes with tax benefits essential in boosting your net worth. Some employers also match your contributions which increases your savings even more.
If your employer offers a retirement saving plan, take advantage of them. For example, if you have a pre-tax 401(k) plan, your contributions are tax-deductible, lowering your current-year tax liabilities.
Additionally, your employer’s match to the plan becomes free money. For example, if your company matches your contributions up to 6% of your gross income, contributing $6,000 on $100k income, means your company will give you $6,000 free money. In order words, your employer’s match is 100% return on investment.
Besides 401(k) plans, you can also open an IRA to boost your retirement savings and build wealth.
8. Protect your assets
While you can build wealth and become financially stable, you can easily all your money if you do not protect your assets. Exposing yourself to too much risk means your downfall will eventually be inevitable. For this reason, protecting your assets is one of the best financial tips for millennials to build wealth.
If you own anything of value such as a home or expensive assets, purchase an insurance policy that protects your assets. Having health insurance is also a great financial tip for millennials as it covers you when you are sick. You don’t want to sell your investments or liquidate assets to pay your medical bills.
9. Increase your income
We cannot discuss the best financial tips for millennials to build wealth without discussing the importance of increasing your income. Being a millennial means your age is between 28-43 as of today. If you are in your late 20s, you still have a lot of time ahead of you to invest, change careers, and explore the world.
If you are in your early 40s, the clock is ticking against you. You need to make as much money as possible to boost your savings and invest in your future. The more money you can make, the easier it will be to build wealth as a millennial.
Why do you need to increase your income? Because to have the same compounding effect on your money similar to someone who is in their late 20s, you must contribute more money. If you started investing at 40 years old with an initial investment of $10,000 at a 10% fixed rate compounded annually and contribute $100 monthly, your investment will become $226,363.53 by the time you turn 65. What if you started investing at 28 years old? Under the same investing conditions, your portfolio will become $736,086.87 when you turn 65.
The key here is that the longer you stay invested, the more money you make due to compounding interest. If you are 40 and want your portfolio to be $736,086.87 when you turn 65, you must invest $530 monthly instead of $100.
Consider ways to make more money, such as starting a side job or freelance work. You can also negotiate a higher salary at your current job, invest in dividend stocks, and more.
10. Be aware of taxes
Tax is the biggest expense that threatens your income. This is because after paying state and federal taxes, you also pay taxes when you spend your net income. For example, when you buy a house, you keep paying property tax even if the money you used to buy the house was already taxed. You also pay sales taxes for every purchase including food, clothes, water, etc.
For this reason, lowering your taxes is one of the best financial tips for millennials to build wealth. If there are any tax deductions and tax credits you can qualify for, take advantage of them. Start by learning the basics of taxes and how to take advantage of all tax benefits at your disposal such as childcare tax credits, home ownership tax deductions, retirement saving tax deductions, etc.
Beyond these strategies, you can invest money in long-term investments where your ROI is not realized yearly. This way, you will only pay capital gains tax which usually ranges between $0 to 18% depending on your income as opposed to income tax that can be as high as 37%.
11. Continually educate yourself about personal finance
Building wealth is a matter of how much you know and the way you apply your knowledge to improve your financial situation. For this reason, continuous learning in personal finance and personal development sectors is one of the best financial tips for millennials to build wealth.
Trust me. Financial literacy is key to building wealth. As you learn and improve your money skills, you figure out different ways to save, budget your money, and invest in your future. Learning also prevents you from making financial mistakes that millions of people are making such as taking out bad loans to impress their mistresses, overspending, or lack of savings.
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12. Leverage technology
One of the best personal finance tips for millennials to build wealth that can benefit you greatly is to utilize technology to help manage your money. Technology can help you do more in a very short time which can save you money and take advantage of investment opportunities. For example, using personal finance apps such as budgeting apps, money-saving tools, or bank account reports showing income and detailed expenses can help you analyze your spending habits, lower your spending, and eventually save you money.
13. Buy a home instead of renting when it makes sense
If you did not know about it, buying a house instead of renting might be one of the best financial tips for millennials to build wealth. When you buy a house, you usually build equity in the house as you pay it off over time and through appreciation. If buying is cheaper than renting, owning a home can help you save money over the long term. Before you buy a house, ensure you can afford it and only buy when owning a will cost you less than your current rent.
Besides your closing costs and down payment, you should also consider overhead costs like homeowner’s insurance, property tax, interest charges, and regular maintenance. You should also consider the HOA fee if the home comes with it. If all these expenses are lower than what you pay for rent, then buying a house could be cheaper than renting.
Read more: How much home can I afford?
14. Invest in mutual funds
Investing is one of the most important steps in building wealth. Given the number of investments available, picking the right investments can be tricky. While most people like to invest in stocks, buying stock-based funds is a much safer way to invest as funds are not exposed to as much volatility compared to individual stocks. Mutual funds and index funds are also diversified, and therefore, safer than individual stocks.
15. Don’t fall for get-rich-quick schemes
Millions of millennials sometimes feel they are left out of the gold rush. Others fear that they might not be able to save enough money before retirement. That is why millennials are more likely to fall for get-rich-quick schemes than younger generations. For this reason, avoiding the get-rich-quick scheme is an important financial tip for millennials to build wealth.
Yes, there are quick ways to get rich but most of these methods cannot be replicated. In other words, if the method being used cannot be repeated, it is a gamble. Unfortunatly, gambling is not a good way to build wealth. To become wealthy, you must stick to proven wealth-building strategies. Never risk your money to false prophets about making money overnight. Real success takes time.
16. Automate your savings
While you can manually allocate funds in different money accounts, automation makes your life much easier. For example, automation ensures you save consistently without forgetting or procrastinating. If you have an IRA, it is easier to forget your monthly contributions when everything is being done manually. But, if you have set up an automatic transfer you will not worry about missing a transfer due to forgetting or because you were not around to make the transfer such as when you are on your vacation with no access to the internet.
17. Negotiate your salary
One of the most important financial tips for millennials to build wealth is to get a higher salary at your job. Negotiating a higher salary is a great way to boost your income. If your company does not give you a raise, look for other companies where you can transfer the same skills and get paid more. You must get paid your worth and only work for companies that appreciate your skills.
18. Invest in yourself
While you can work daily Monday to Sunday, investing in yourself is one of the best personal finance tips for millennials to build wealth. There are only 24 hours in a day and the only way to make more money is to increase your value in the company. You cannot get more hours in a day. That is why as a millennial, you need to focus on improving yourself by upgrading your skills and knowledge through courses, books, and seminars. The more you learn in your career, the more value you will bring to the company and the more money you will make.
19. Make a plan for your financial goals
Before you become financially free, you will need to have financial goals. Usually, people fail to save money because they don’t have financial goals to save money for. They start saving only to spend their savings on impulse purchases.
For this reason, you need to establish financial goals and live by these goals. Have clear short-term and long-term financial goals and make a plan to achieve them. Common goals you can establish include retirement saving goals, saving for a down payment on a house or a car, saving for college, emergency funds, vacation savings, and investing goals.
Financial goals also help you prepare for major purchases preventing you from borrowing more than you can afford. The real success is in the preparation. The more you prepare yourself for major financial decisions, the better off your life will be.
20. Avoid unnecessary debt
Debt is probably the biggest reason millions of people are struggling financially. If you are a millennial with no savings, you might be spending all your income on debt payments. Unfortunately, only the lender benefits when you take a loan.
To build wealth, avoid unnecessary debts especially credit card debts and personal loans. For example, millions of people take out loans to remodel their kitchens or change the toilet simply because they don’t like how it looks. While you get a good-looking kitchen or a bathroom after renovations, you also have to spend the next 10 to 15 years paying off that loan with the money you were supposed to invest. Loans cost you the future and for this reason, avoiding unnecessary debt is one of the best personal finance tips for millennials you should practice from today.
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21. Save for retirement
Earlier, I mentioned that you must take advantage of retirement savings that you qualify for such as 401(k). In this section, I want to touch on retirement savings because as a millennial you must have money saved for retirement to be able to retire. If you have not started saving for retirement, you might be running out of time.
Retirement savings plans are a perfect way to retire comfortably and avoid outliving your savings or working during retirement. If you dream of retirement one day, start saving for retirement. Start with a 401(k) plan and open an IRA. Contribute as much as possible to maximize your tax benefits and grow your net worth fast. For 2024, you can contribute up to $23,000 or $30,500 if you are 50 or older in your 401 (k) plan. For IRA, you can contribute up to $7,000 or $8,000 if you are 50 or older.
There are retirement saving plans designed for small business owners and self-employed individuals for those who don’t have access to 401(k) plans. For example, SIMPLE 401(k), IRAs, and SOLO 401(k) are some retirement savings accounts you can explore.
22. Maintain good credit
We can not discuss financial tips for millennials to build wealth without emphasizing the importance of having good credit. Many years back, credit history and credit scores were not that important. However, in recent years, having good credit has become extremely important.
Good credit can help you qualify for loans with favorable rates and terms. Landlords also started using credit scores to screen tenants for rental purposes. Even companies in different industries use credit as part of job screening processes.
The point here is that even if you are not planning to borrow money, having good credit is critical in the modern world. Your credit shapes the kinds of business services you qualify for and the terms of those services.
23. Learn about the stock market
Equities are a major investment sector shaping modern economies. While a financial advisor can make investment decisions for you in exchange for a small percentage of your profit, you should learn how the stock market works. The more you learn, the better you can make better decisions and prepare yourself during market crashes. The stock market moves economies and those who know what to do during good or bad economies make the most out of any situations.
24. Make smart choices
The last of the most important financial tips for millennials to build wealth is making smart choices. Life is full of temptations and if you are not careful, you can easily wreck your entire world as you know it and forget about your financial futures. For example, if you hang out with the wrong people, you might end up struggling with alcohol, face drug addiction, or go to jail. If you eat bad food, you might develop cancer and die sooner than you could have.
If you take out bad debts and fall for instant gratification, you will spend your entire life paying off debt and making banks and lenders rich while eating dirt. The point is that you must make good financial and health choices to achieve your goals. The more you stay on top of your decision-making abilities, the higher the chances you will reach financial stability and build wealth.
Be thoughtful and deliberate about your financial decisions. Don’t rush your decisions and always avoid desires to look rich.
