How to Figure Out Important Money Matters

February 23, 2017

A staggering amount of millennials admit they don’t know how to manage their money. According to George Washington University, only 24 percent of millennials understand “basic financial knowledge” and only one in four are getting professional financial help. And with student loans on the rise and salaries stagnant, millennials need more than personal financial advice; they need financial smarts. So we've rounded up four tips that will help young professionals rethink their student loans, start saving now, and plan for their futures.

Get on apps

Phone apps can save you a lot of money, and not by downloading coupons or buying Groupons. Instead, financial applications have become all the rage—and for a reason. Certain apps can automatically save you money from your checking to your savings, like Digit. Setting up a weekly transfer of at least $20 can save you over $1000 in one year.

Others do much more. Acorns really does help you “automatically invest life’s spare change” just by rounding up your purchases to the nearest dollar and investing it automatically across 7,000 stocks and bonds to help improve the return while reducing risk. Acorns invests in Exchanged Traded Funds, which are “made up of broad holdings of stocks or bonds. Often, these ETFs replicate an asset class or index like the S&P 500 or Dow Jones Industrial Average.”

In addition, download your bank’s app to track purchases, due dates, and recent statements on the weekly, if not daily. However, these apps are just a starting point. For a good list of ones to consider, check them out here.

Maintain a high score

Credit scores can make or break you, really. A bad credit score can make you lose out on an apartment, a house, a car, and much more. Ron Lieber summed up the importance of maintaining a good credit score, and understanding just what they are:

“Credit scores are how lenders figure out whether to lend you money and what kind of interest rate to charge. It’s based on your credit report, which shows how or if you’ve paid your bills on time and how much you’ve borrowed. It’s also wrong a fair bit of the time. So it’s worth checking your credit report once each year for mistakes. You can get free copies of the report from the three big companies that keep track of you here. Don’t Google ‘free credit reports.’ There’s lots of nasty stuff out there intended to trick you into buying stuff — go here instead to get your FICO score, which companies use to measure your history with debts and paying your bills on time.”

Credit scores range from 300-850, with the higher the number, the better. A credit score is just a quick way for someone (a lender) to determine whether or not a customer (you) will be a good or bad investment. It is not the only thing that matters when applying for loans, housing, etc, but it is definitely a number that will follow you for years to come, so nurturing it is very important. A good way to maintain a high credit score is to make payments on time, don’t open or close credit cards often or for unnecessary reasons, and paying off debt rather than moving it around.

Plan to get older

Enroll in your company’s 401(k) or set up an individual retirement account or Roth I.R.A. at a local Schwab, E-Trade, Fidelity, or Vanguard. 10 percent should be a minimum to invest, with aiming to raise that number if your company matches your investment. This means that whatever you put in, the company will double. It's important to understand what your company offers:

“Thanks to compound interest, your savings will grow exponentially until you retire, so it’s crucial to start saving as much as you can, as early as possible. Many employers will match their employees’ contributions up to a certain percentage, which is yet another incentive for you to start saving—your employer is essentially giving you free money.”

You want to be happy and not financially burdened when you're older, so start thinking (and acting) on it now. 

Rethink student loans

The average college graduate leaves college with $28,950 in student loan debt. This is not a small problem, especially considering that two thirds of college graduates have student loan debt. Even scarier, according to the Brooklings Institute, “among all first-year students with federal loans, 28 percent reported having no federal debt and 14 percent said they didn’t have any student debt at all.” Apparently, a quarter of us don’t even know we’re in debt when we are.

The College Investor gives a wonderful starting off point in first and foremost understanding the interest, which is one of the main factors of debt:

“Simple interest takes your loan amount (say $10,000), and calculates the interest 1 time. If your interest rate is 5%, your total interest on the loan will be $500. Compound interest, which is much more common for student loans, charges interest for the duration of the loan, calculated annually. This is where it gets scary. If you borrow the same amount ($10,000), at the same rate (5%), but it compounds annually and you make the minimum payments (which would be about $106/mo), your total interest paid over the course of the loan jumps to $2,728.”

Simply compounding interest doesn't guarantee that you'll save money, even if it might seem easier to manage. Instead, consult with a professional before making this type of decision. 

by Kristina Rudic

Chicago City Hall
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