Millennials are faced with plenty of competing concerns when it comes to their finances: day-to-day expenses and inflation, building their savings and putting funds away for retirement. Among the biggest priorities for many are offloading their student loan debt while still being able to afford purchasing a home.
Millennials also make up a huge chunk of those who owe: According to the Education Data Initiative, more than two thirds of all student debt in America is held by borrowers between 25 and 49. Of the 43 million Americans who owe federal student loans, about 95% of those make under $125,000 a year, according to the Congressional Budget Office.
Current headwinds have made these financial goals harder to meet. Mortgage interest rates are more than double the lows they hit during the pandemic. Plus, the roller coaster battle over federal student loan policy between the Biden administration, Congress and the courts has made it hard for borrowers to know what to expect in terms of what they will or won’t continue to owe.
“There’s been a ton of uncertainty with how we actually plan around this, so people had to kind of sit around and wait to see what was going to happen,” said Dominic Puczylowski, a financial advisor with Northwestern Mutual. “As a result of that, they weren’t able to do a ton of things with their finances proactively.”
After having been on hold since March 2020, federal loan repayments are now set to resume in October.
“We are living in times where it’s more complex than ever to make ends meet,” said Jarod Dickson, host of the Millennial Economics podcast and author of 52 Money Lessons from a 30-Something. “The cost of everything is higher than ever, and with mortgage rates steadily increasing and student loan payments set to resume, young people in particular are facing tough choices regarding what to do with their money.”
Dickson and Puczylowski offer these tips and strategies to help millennials plan for meeting both their dreams of home ownership and debt elimination.
Puczylowski says many of his clients have felt like their hands are tied as they’ve waited for student loan policy to get figured out. But he advises them to do what they can to put themselves in the driver’s seat. “It’s still important for people to take action on some things in the meantime,” he said.
One of his favorite strategies is to move forward as if their debt won’t be forgiven and set aside the necessary amount each month toward debt repayment.
In the worst case scenario, he says, their debt won’t be forgiven, but at least they’ll be prepared for that. In the best scenario, they’ll get some debt relief and have a good amount of extra savings to put toward their home fund or something else.
“Clients appreciate it when they’re doing something and taking control of the situation,” Puczylowski said.
For those who didn’t get in on home ownership when interest rates were hitting historic lows — and are facing skyrocketing rental costs to boot — there can be a lot of feelings of pressure and regret. But Puczylowski says he tells people to have patience.
“There’s this stigma with renting that you’re throwing money down the drain,” he said. “But in my opinion, you’re paying for flexibility, and you’re paying to not have the responsibility of owning a home, which can also add up to a lot.”
He said that if you take the pressure off yourself and aim to save for another few years, “you’re probably going to be in a better position financially versus just rushing into it.”
Build and Adhere To a Budget
It may be one of the most common things you hear, but countless financial experts preach it for a reason.
“A simple budget is the foundation of any financial success. Knowing how much money you’re bringing in each month and contrasting that with what your monthly expenses are is imperative,” Dickson said. “Tailor your budget to fit your needs and adhere to it every month.”
Once you have a strong understanding of your cash flow and priorities, Puczylowski’s general rule of thumb is to save 20% of your net income, which can be distributed into a home fund, retirement savings and other long-term savings — versus a vacation or short-term savings fund — that will increase your net worth.
Avoid High-Interest Debt
When money’s tight, Dickson says adding high-interest debt to the equation can be one of the worst things you can do.
According to Lending Tree, the average APR for new credit card offers is 24.37%.
“Costs of goods and services are straining enough on everyone’s bank account,” Dickson said. “Avoiding these high interest rates will ensure your money isn’t working against you and you don’t get caught in the trap of paying monthly minimums that don’t pay down principal.”
Level Up Your Skills
For millennials who don’t have kids or other heavy financial obligations, Puczylowski says it’s usually not too hard to save the target 20% of your income each month. For those for whom that’s more of a challenge, he has them look for ways to increase their income and lower expenses, starting with a lower target and working their way up to 20%.
Dickson suggests leveling up your skills, especially since now is a good time to take advantage of companies’ needs for good talent. “Take time to invest in yourself,” he said. “A higher income always makes saving for a home and paying down debt easier, as long as good spending, saving and investing behavior are paired with it.”
You don’t have to spend a ton of extra cash to do so. Free online courses and inexpensive certifications can help you add a lot of attractive skills to your resume.
Take Advantage of a High-Yield Savings Account
The money you’re saving for your home purchase could be growing all by itself.
Dickson recommends putting your home fund in a high-yield savings account, which are FDIC-insured savings accounts offered by many banks that currently earn as much as 5% APY, compared with around 0.4% for traditional savings accounts. “These are no-risk non-investment accounts that are a great place to store savings,” Dickson said.
Talk to an Advisor
“I love these financial articles that come out and give people so much valuable information, but the biggest thing is understanding that everyone’s situation is completely different,” said Puczylowski.
He says it’s important to find an advisor who helps you approach your financial strategy through a holistic lens that takes into account everything — from your family’s relationship with money growing up to how you communicate about money with your partner. “Take the time to get a personalized approach rather than just going about it on your own,” he said. “That will really help you navigate the uncertainties of buying a home.”
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