Introduction 

• Lots of individuals, websites and companies go on and on about how, how much and where Millennials should be saving each month, far too often this information is so specific and un-relatable that Millennials never get past the first few days or steps of implementation.
• I have therefore decided to create this piece to take everything back to the start, in a simple to understand and implement way, highlighting the FOUR things every Millennial wanting to become conscious of their financial future needs to focus on. The four are:

• Living below your means
• Eliminate high interest debt
• Build emergency savings
• Get on track for retirement

Living below your means 

• To be able to live below your means, you need some sort of budget, you need to understand how much is coming into your account each month, what your unavoidable expenses are (rent, food, bills, travel) and what your left over pot of money is. I fully understand & appreciate that having a budget is an extremely dry topic but having one doesn’t mean you have to live a boring and dry life. It also doesn’t have to take up hours of your life, this is especially true if the majority of your out-goings are the same day in day out or week in week out.
• There are a lot of free (and also rather pricey) tools out there to help you manage your budget, but I’ve never really found I’ve needed these. I simply keep track of my outgoings  in a simple excel sheet or note down spending on a ‘note’ in my phone if out and about, then once a week collate the two.
• You don’t need to be overly strict about noting down everything fully, you don’t have to track every penny, there is just one key rule; you MUST ensure you have more coming in each month than going out. I can’t overstate how important this rule is, if you don’t follow it you’ll never be able to save and you’ll never grow your wealth.

Eliminate high interest debt 

• Once you’ve managed to ensure that each and every month you have more coming in than going out the next stage is to eliminate your high interest debt as soon as possible.
• I wouldn’t say there is a magic number or percentage for what is considered ‘high interest’ debt, but finger in the sand figure I often use is 6%. Considering that historically the average rate of return on investments is 3-4%, at 6+% interest the debt you are having to pay is almost double the return you’d get if the circumstances were reserved and you were saving or investing the money.
• It sounds obvious, but target the highest interest rate debt first, even if it isn’t the highest total value, and then work your way down.

• High interest debt is often Credit Card Debt, Pay Day Loans, Car Loans but really it can be anything, the key is to pay it back as soon as feasibly possible. Paying it off should be your number 1 financial priority, before saving and before that pair of shoes you’ve recently spotted and fallen in love with!
• Another very important thing to be aware of, make sure you don’t pick up any new high interest debt whilst paying off other debt. I know it sounds stupid to say, but I have known people who have been really pleasured with themselves for paying off their 15% a month interest on credit card and then at the same time got a new car on 9% interest a month. That isn’t an improvement – the key is to eliminate this type of debt completely.
• If you have a problem with spending on a Credit Card pay if off then cut it up and throw it in the bin. If you have Credit Card debt across multiple cards ensure you consolidate onto 1 card, many companies out there can help with this. It’s much easier to consolidate and focus on one bill than many.
• On the topic of car buying, I would also never buy a brand new car or take a loan out to buy one. By driving it off the forecourt you are wiping 30% off the value, it’s a terrible investment, you’d never touch any other type of investment that was going to lose 30% immediately and then keep depreciating forever.
• The key to eliminating high interest debt is two fold; correctly identify it and don’t attract any more of it. If you can achieve these two things and hit the payments each month it’ll soon be eliminated.

Build emergency savings 

• If you’ve managed to live within your means and eliminate your high interest debt then massive congratulations, you have put yourself in a neutral position where you aren’t losing money. In this position you’re not building your wealth and saving for the future, yet, making the next step to start building your savings and investments portfolio.
• I recommend keeping things very simple to start with. Chances are you want this money to be very readily available in case you miscalculate one month or have an emergency, so I don’t recommend locking any of your first lot of savings away for a long period.
• Despite the return on Easy Access Cash ISA at the moment being incredibly poor (less than 1% on average) it is still the best thing in my opinion. This is because gaining a significant return isn’t your priority here, the priority is to be regularly saving some money and having it readily available.
• Some people who get to this position don’t really want to do the emergency savings thing, they often say that now they have a positive monetary position they want to maximise their return. I caution you here, don’t try to run before you can walk. Setting up emergency savings helps build the habit of saving and also stops you getting back into the high interest debt circle, I can’t overstate the importance of building this habit. Habits are ingrained within all of us and are not easy to fall into or out of, so start slowly and set the right habits and foundations.
• The long term hope is that you don’t need to use this money and when you have more security and more funds you can take more calculated risks with your money in search of maximising returns.
• I suggest that you need a build up 3 months of emergency savings before you move onto the next stage. I define a months saving as the amount of money required to cover 1 months worth of unavoidable expenses (rent, travel, bills etc). 3 months is the figure often thrown around and I do think it is a good ball park figure, if you were made redundant tomorrow or had a serious incident you need a generous safety net to allow you time to recover fully and plan for your next steps without the immediate pressure of getting a pay check.

Get on track for retiring 

• There has been so much in the British press recently about pensions. Much of this is related to the pension reforms that George Osborne and the Conservative Government have been making to increase the options available to those approaching retirement. However, these reforms are of less importance for Millennials who are starting out. There is just one very important rule; start saving as much as you can afford each month regularly and don’t be put off by all the options. There is a lot of evidence out there which shows that the more options people have the less likely they are to make any decision.
• I’d suggest every Millennial to start with their Workplace Pension. This is easy because you are auto-enrolled (if over 22 years old, earn more than £10,000 a year & working in the UK) into Workplace Pension and it involves you getting free money from your employer. Another good thing about the Workplace Pension is that it helps reduce your tax bill, because the money going into your pension is taken out before income tax is applied.
• Once you’ve got a Workplace Pension set up I suggest to increase the percentage of your salary you pay in as much as possible, I suggest that your contributions plus your employer’s contributions should add up to 12-15% of your salary.
• Once you’ve managed to do this I’d suggest setting up a Stocks & Shares ISA. You will already have a Cash ISA for your Emergency Savings so it would be the next logical step.
• There is a wide variety of Stocks & Shares ISA available, including Investment Trusts, Exchange Traded Funds and Unite Trusts, and you will want to do some careful research here to ensure that you pick the right one for you, and outside the scope of this post. The main benefit of Stocks & Shares ISA is that any increase in the value of investment is free of capitals gains tax. They are also usually provided by brokerage firms which have an excellent online digital presence, for example Nutmeg.
• From April 2017 the ‘Lifetime Allowance’ ISA will come into being in the UK and be available to Millennials. This will allow you to put £4,000 a year away in an ISA to save for property or retirement without paying tax on the interest you earn. On top of this the government will give you 25% bonus each year, this means an extra £1,000 from the government from the £4,000 you put in. I personally cannot wait for April 2017 to come around!
• As you’ll see the ‘getting on track for retirement’ step in this fundamentals plan is the most open and personal part. If you are also finding this the most over-whelming part just remember that they key is to put a regular amount away each month for your retirement, if possible 12-15% of your monthly salary.

Conclusion 

• To be able to implement the 4-part plan I’ve detailed here, which covers the money fundamentals for Millennials, there are two very important and uninteresting things required; (1) Discipline (2) Perseverance. If you have these two things and follow the above, you will set yourself up in the best possible way for the future. Not only will you get rid of your bad debt faster and be on track for higher returns later in life, you’ll have formed the right habits and methodologies to help you succeed at many things in life, not just in your financials.
• I have purposefully kept the 4 step plan very easy to understand and implement because I truly believe there is too much over-specific information out there, which only confuses Millennials – and everyone – too much. This is not a detailed investment piece on how to maximise your returns, simply a blue-print to start following and implementing. Good luck!

 

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