News outlets all over the world are constantly publishing pieces suggesting millennials aren’t spending wisely. ‘Why do millennials go on holiday all the time instead of saving?’, ‘millennials are breaking investment’ and the classic, ‘millennials spend all their money on avocados instead of saving for house deposits’ are just some sentiments that have made waves over the last few years.
But, as real life tends to be, the situation is a bit more complex than popular feeling. Let’s dive into the millennial financial situation, explore their typical spending habits and some tips for better saving.
How are Millennials spending their money?
The millennial situation is tough
There is no beating about the bush here, millennials have it tough when it comes to managing finances. Unlike their parent’s generation, some basic financial milestones are now almost unattainable and many millennials feel angry or despondent when it comes to discussing a financial future it feels like they may never have.
Here are some of the core issues that plague the finances of millennials and seriously impact their spending habits:
- High rents and an unaffordable housing market: It’s worldwide knowledge at this point that Australian cities have a housing problem. Sydney is now one of the most expensive cities in the world and Melbourne, Perth and Darwin are following close behind. Australians spend up to 40 per cent of their income on rent, according to Finder, making saving for a house deposit or investing in the future harder than ever.
- Student debt: University is now often a compulsory requirement for high-level jobs, but at what price? Even with the Higher Education Loan scheme, most Australian students will be carrying thousands of dollars of debts well into late adulthood. This immediate blow to financial future is preventing many millennials from saving for other goals,
- Lower salaries: Record low wages and lack of salary growth has hit this generation like no other. Balancing living costs with low entry salaries can make living paycheque to paycheque a matter of necessity.
Millennials prefer to spend on experiences rather than things.
So what do Millennials spend their money on?
In this climate what are millennials actually spending their disposable income on?
- Holidays: Millennial travellers are spending a whopping $11.3 billion overseas per year, the most of any age group according to Westpac’s 2016 Travel Finance Report. This compares to 15 per cent more than Baby Boomers, who spent $9.8 billion on overseas travel and 66 per cent more than Generation X who spent $6.8 billion.
- Luxuries: A report by Charles Schwarb has revealed that millennials spend more than other generations on comforts and conveniences like taxis, pricey coffee and dining out.
It’s not difficult to see that due to the financial environment that they have been raised in millennials have collectively turned their back on long-term savings goals. Instead, they are finding more pleasure in living in the moment and experiencing the world. Retirement savings and housing deposits can seem totally impossible for this generation so who can blame them for focusing more on the short term?
However, despite some big financial hurdles, there are some ways that millennials can put some pennies away.
3 tips to start saving as a millennial
1. Make sure your super is in order
Your super is a fantastic hands-off opportunity for you to put something away for your retirement. Not only can you grow it through sacrificing a small amount of your earnings, your employer is also legally obliged to contribute at least 9.5 per cent of your wage. This is essentially free money to help you in the future.
You can make the most of your super by following some easy steps:
- Find any lost super. You can do this through a quick search on the Australian Tax office’s website. You will need your Tax Identification Number (TIN).
- Choose the right level of risk. Higher risk can lead to better returns in the future but you will have to be prepared to cope with more volatility in the short term.
- Make sure your employer is making the correct contributions. It’s always worth double checking if you don’t want to miss out.
A little bit of saving can go a long way.
2. Don’t ruin your credit score
Credit scores can be easy to ignore if they don’t immediately impact your life, but having a bad score could seriously damage your chances of meaningful purchases in the future. This means being careful to:
- Pay your bills on time.
- Don’t apply for too many credit cards in a short period.
- Where possible don’t max out your credit card.
- Consider loans for large purchases, rather than using credit cards.
- Even better, try to save for large purchases rather than take out loans.
3. Create a budget plan
Reaching your financial goals starts with making a solid plan. Sit down and work out what your unavoidable monthly costs are (rent, transport, bills etc.) then plan how much you have left. Out of the remaining, you can hold yourself to putting a set amount into saving every month. Even if this is only $10 it gets you into good habits and you can see your progress over time.
If you want to learn more about how you can plan to make the best future for you get in touch with the financial experts at Invest Blue today.
What you need to know
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