4 Financial Strategies for Beating the Millennial Wealth Gap
For young professionals today, there’s been a “good news, bad news” financial scenario developing for a while now.
Good news first: The unemployment rate for college grads, ages 22-27, is finally on the decline. Recent data from the New York Fed outlines a 7.1 percent unemployment rate in March 2011 and a 4.9 percent in 2015.
The bad news? Despite the fact that there are more jobs available for younger workers, widespread wage stagnation and decline has made it hard for 20- and 30-somethings to play financial catch up. Add to that a record volume of student loan debt, and you’ve got an entire generation suffering from a generational “wealth gap.”
While this certainly paints a bleak picture for millennials and money, there are a few financial strategies young professionals can take to get ahead. Here are four big ones:
1. Don’t wait to start saving and investing
Saving money is one of those concepts that sounds simple in theory but can actually be quite challenging in practice—especially when you don’t have much leftover to save after rent, bills, and student loan payments. Unfortunately, the longer you wait, the harder it will be to catch up later. And the less you benefit from the magic of compound interest and returns.
There are tons of tools and programs out there that promise to help you budget, save money, and invest in the market, but if the complexity factor is what’s been holding you back, why not start with one simple step? Whether it’s setting up a small automatic transfer to a savings account each month, putting half of your next bonus into a high interest certificate of deposit (CD), or increasing your 401(k) contributions by 1% each year, or looking into robo wealth management tools, every little bit counts when you’re making your money work for you.
Need more inspiration? Check out this list of 36 ways to kickstart your savings from the personal finance blog, And Then We Saved.
2. Be smart with debt
Debt is an unfortunate part of life for most millennials. Whether it’s a large student loan balance, credit card debt, a car loan or all of the above, it’s crucial to face your debt head on in order to keep it from holding you back. “If you want to kill debt forever you have to attack the principal,” says John Schmoll at ReadyforZero. “This becomes more of a challenge with a lower income—but it can be done by finding any way possible to lower the interest rate you’re paying.”
For example, if you’re carrying a balance on your high interest credit card, you may want to consider paying off that balance with a low-interest personal loan and cutting up the card. You’ll not only save money on interest, but you’ll remove the temptation to spend above your means.
As for student loans, there are several ways to ensure you’re not overspending on interest. For some people, student loan refinancing at a lower interest rate can be a cost-saving option. You can also lower your monthly payments or shorten your payment term
If you don’t qualify to refinance, consider throwing a few extra bucks toward your loan each month. As long as your lender is applying the extra payments to principal, you’ll pay off loans faster and save money on interest in the long run.
3. Choose your grad degree wisely
One way to potentially boost your income outlook is to go back to school for a graduate or professional degree. Grad degrees usually come with a hefty price tag (and subsequent student loan debt), but if you pick your area of study wisely it can have a positive impact on your salary trajectory.
SoFi recently crunched the numbers on more than 200,000 student loan refinancing applications to determine the return on education (ROEd) for different undergraduate and grad school degree combos. We found that in most cases, grad school paid off for our applicants in the form of higher lifetime income—but there were a few exceptions to the rule. For example, in a couple of cases, getting an MFA actually decreased the applicant’s income potential.
4.Maximize your wages
One of the factors driving wage stagnation may be that millennials in the workplace aren’t negotiating hard enough when it comes to starting salary and pay increases. And it’s understandable—asking for more money is stressful and uncomfortable, not to mention difficult to do when you’re not totally sure what your peers are making.
Luckily, these days there’s a lot more pay transparency than there once was, and arming yourself with data can help you feel more confident when you’re negotiating salary. Use sites like Glassdoor to get a ballpark idea of what employees at your level make at a particular company, and check out our research on salary trajectory by degree to see how income stacks up from an industry perspective.
When it comes time to have the difficult pay conversation, we’ve got some valuable tips for making that salary negotiation go your way.
Until the tides of certain economic factors start to turn, the best thing you can do is take control of your finances where you can. Just knowing that you’re doing something to beat the millennial wealth gap can make you feel better about the situation—and will likely set you up for a brighter fiscal future than if you did nothing at all.
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I think being smart with debt puts you way ahead of the curve. I got out by consolidating and saved and got out of the trap fast. The best way if your going to do it is find someone who takes your application and lets lenders compete for your business. The one I used was http://www.firstlibertyloans.com I hope this helps
Good advice. However there is no such thing as a high yield cd these days,
The internet is a great place for collaboration and innovation. People can present their ideas to the world and receive instant feedback. I love it.
Regarding the article however, the content seems a little watered down. The article is basically telling people to “save more, spend less, and earn more.” This is wise advice, but doing these things won’t really help you beat the wealth gap. The advice will just ensure you are solid middle class. What about adding value to society? How rare are you skills? Are you a [rising] leader in a growing industry? What about building systems and assets that grow in value and produce income? What about stepping off the conveyer belt and taking some calculated risks? Investing in retail IRAs will ensure you retire with an average account size (which isn’t enough). Buying into the market at all time highs doesn’t seem wise. Average financial plans charge 2-5% annually (even if your account is down for the year). Learn how to manage your own money. Be aware of other currencies and commodity values. Park some wealth in assets that float with inflation.
I’m a millennial in my late twenties. Debt free, have an MBA, leader in my industry. From the outside, I’ve done everything society tells you to do. I’ve played the game and reached “the top”. The world will tell you that if you reach this point you will feel a pinnacle sense of satisfaction and self fulfillment. Hint: it’s not true. At least for me, earning more money in a corporate bureaucracy is fools gold. Take risks, learn from your mistakes, add value to society, and love. Build something that supports you, grows in value, and helps others.