5 Genius Things Millennials Do With Their Paychecks
Written by
Kerra Bolton
Edited by
Jenna Klaverweiden
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Millennials often get a bad rap for lifestyle spending. However, from prioritizing flexibility to creative investing, millennials make some of the smartest money moves of any generation.
Here are five genius things millennials do with their paychecks.
Also see seven things millennials are overspending on.
Automating Everything
Many millennials are digital natives who lean heavily on fintech tools to automate savings and investing, bill payments, budgeting, and spending.
“As a tech-savvy group, this generation is investing differently, using apps for investing and they generally lean toward high risk, high reward strategies,” said Kayla Lussier, co-founder of Money Match, a real estate investment platform. “Instead of manually tracking finances, this generation also relies on budgeting apps to stay on track with their financial goals, monitor expenses, and build better money habits over time.”
In addition, according to Logica’s Future of Money study, millennials use tech for financial security and control. “Millennials balance technology-driven habits with growing financial maturity,” the report stated. “They lag only slightly behind their younger counterparts in using mobile devices for in-person payments (65%).”
Making Their Money Work For Them
While millennials have learned to work hard to get what they want, they have also learned to make their money work for them.
“We see this when millennials use their savings or retirement accounts to fund real estate deals for double-digit returns rather than let it sit idly, earning less than 1% annually in savings accounts or 6% to 8% annually in their retirement,” Lussier said.
In addition, Lussier said millennials have a different approach to entrepreneurship. “Instead of feeling the need to start a business, many millennials are opting to buy established businesses from baby boomers, short cutting the process to achieve consistent revenue,” she explained.
Value-Based Spending
Erika Kullberg, a personal finance expert and founder of Erika.com, said millennials tend to value sustainability when making investment and purchasing choices.
“For example, online resale items are popular among millennials, not only because they cost less, but also due to sustainability,” Kullberg said. “A large portion of millennials buy used clothing, due to their awareness of fast fashion’s impact on the environment.”
This habit not only benefits the environment but also benefits millennials’ wallets. “This habit minimizes their discretionary expenses, allowing them to save and invest more of their income,” Kullberg said.
Investing In Roth IRAs
Millennials may be drawn to Roth IRAs because qualified retirement withdrawals, including contributions and investment earnings, are tax-free.
According to the latest data from the Center for Retirement Research at Boston College, the percentage of young households with a Roth IRA has increased in recent years. University researchers attribute the increase to the rise of fintech among younger generations and the popularity of auto-IRA programs, which require employers without a retirement savings plan to enroll their workers in a Roth IRA automatically.
In addition, millennials are drawn to Roth IRAs because, unlike traditional retirement accounts, they can withdraw their contributions without taxes or penalties, giving them the flexibility to cover major expenses like rising home costs. First-time homebuyers can qualify to withdraw up to $10,000 of investment earnings tax-free and penalty-free for a down payment if they have been enrolled in a Roth IRA for at least five years.
House Hacking
Some millennials are investing in real estate to generate more income instead of solely on traditional 401(k) investments.
“House hacking has become popular, where millennials buy a property and rent out the rooms of their primary residence to roommates to cover their mortgage payments and make their paycheck go farther,” Lussier said. “Others live in homes short-term, use their paychecks to fix it up over a few years, then sell at a nice profit, then move on to the next house, and avoid capital gains taxes. Many are seeking private capital funding for fix-and-flip projects or using their main job as income to lend private money to flippers in exchange for double-digit returns.”
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