Personal finance is called personal finance for a reason: it is largely based on individual situations.
You wouldn’t give the same financial advice to a college student as you would someone just a few years away from retirement.
With that being said, I do think there are 5 financial goals everyone should work towards. These would apply to a wide variety of situations, though of course it wouldn’t apply to every situation.
The interesting thing about the millennial demographic, which includes people ages 18 to 35, is the large variety of financial situations you run into. This demographic includes those who are just starting college, those who are a few years out of college or in grad school, and even those attending their 15 year high school reunions.
Needless to say there is a lot of variance when it comes to millennials’ personal finance situations.
The following 5 financial goals are things that virtually all millennials are working towards, though, in one way or another. Keeping these 4 financial goals in mind will help guide nearly all financial – and life – decisions.
1) Gaining Financial Confidence
In the past Erin talked about how confidence increases earnings potential, but today we aren’t talking about asking for a raise at work (though that certainly isn’t a bad way to boost your finances!). One goal I think everyone should be pursuing in one way or another is gaining financial confidence.
Financial confidence goes hand-in-hand with financial literacy. When you have financial confidence, you have confidence in your knowledge and understanding of personal finance. You know whether to sign up for term or whole life insurance – or to not sign up for life insurance at all. Most importantly you understand why you are making the financial choices you make.
Gaining financial confidence takes sacrifice and discipline. Reading and learning about personal finances isn’t the funnest thing to do in your spare time, but it just might be the most rewarding. Reading blogs like Young Adult Money and researching personal finance topics relevant to you are both good ways to gain financial confidence.
Gaining financial confidence takes time and there’s always more to learn. Not sure where to start? Why not start with these 7 ways to improve your finances?
2) Cutting Expenses
Cutting expenses is another financial goal that everyone should pursue. The “golden rule” of personal finance is spend less than you make. This obviously doesn’t apply to everyone, as nearly all college students end up spending more than they earn. But once you are graduated from college you should really focus on cutting expenses until they are below your income.
Cutting expenses will look different for everyone, but the first thing you need to do is record your income and expenses. If you don’t have a good understanding of where your money is going it’s really difficult to cut costs. Once you have a few months of income and expenses recorded you can start to analyze it and look for areas that you spend more than you should. Perhaps you spend hundreds more on eating out than you thought you did. If so, that’s a good target to cut costs.
How do you practically cut expenses, though? The easiest – though definitely not the most painless – way is to simply cut back on spending. If you spend $500 on restaurants each month target $200 going forward. One thing my wife and I have found effective is couponing. We even created a coupon database in Excel that many people have found useful. New to couponing? Check out our 12 tips for beginner couponers.
Just like everything else in personal finance this goal will be more or less important to each person depending on their unique situation. For example my wife and I have done many things to cut our expenses. We’ve couponed for years now and have saved thousands of dollars. We’ve trimmed down excess spending and track our finances month-after-month. Because we’ve gone through that cost-cutting exercise we are now much more focused on increasing our income.
3) Increasing “Regular” Income
The third financial goal I think everyone should pursue is increasing what I call “regular” income. Regular income to me includes anything where you are trading time for money. This includes your job, freelance work, and any side hustle where you need to consistently put in time to get paid.
This blog has been very focused on the topic of increasing income. I strongly believe that increasing income can have a much bigger impact on your finances than virtually anything else. I wrote a post earlier this year titled Why Making Money is Better than Saving Money where i laid out my case for focusing on increasing income.
Many blogs focus on passive income, which I will touch on in a bit, but the reality is that most people need to work to get the resources necessary to create passive income. Most of us work a 9-5 job. I am a strong believer in the fact that if you’re going to work a 9-5 you might as well make as much as you can during those hours. I used online resources to find and compare salary data that allowed me to negotiate for a higher starting salary at a new job. I would highly recommend people always look to “move up” and increase their 9-5 income.
It’s not all about the 9-5, though. Most readers of Young Adult Money are also curious about strategies for how to make money through side hustles. I have been working side hustles – including but not limited to running this blog – for years now. One of my recent posts highlighted 10 Ways I’ve Made Side Income. I was happy to share this post because a lot of bloggers write about ideas for side hustles. My post is actual side hustles I pursued, not simply ideas.
I think regardless of what you do for a job, what sort of business you own, or what your side hustle is, you should always look for ways to increase your income. Even people who work in jobs that have relatively “set” salaries – such as teachers – should consider ways that they can increase their income. Even teachers can explore looking for a job in a higher-paying school district or even starting a side hustle in their spare time that supplements their income. The options are endless.
As a last point I truly am biased towards making money through blogging. The income I’ve gained from blogging has really changed my life. If you are interested in starting a blog I explain how to start a blog in 5 easy steps. I also have a post that explains 8 Ways to Make Money Blogging.
4) Increasing Savings and Investments
Another financial goal that I think everyone should pursue is increasing savings and investments. Savings gives you options and helps alleviate some of the stress and pressure that come with unexpected expenses. It also allows you to avoid going into deeper debt for inevitable expenses such as a car, home upgrade, or medical cost.
One of the most stressful times in my marriage was when we allowed our savings to dip too low. We were new homeowners and fairly recent college grads (and not to mention newlyweds!). Emergencies and unexpected expenses happened, and I hated the feeling of not having enough cash in our savings account to cover those costs. After experiencing that I immediately made building a small emergency fund a priority. We were able to do this primarily through blog income, which was a huge blessing. Did I mention increasing income should be a financial goal??
At this point in the post I feel it’s necessary to mention high-interest debt. Savings is important, but if you have high-interest credit card debt you need to consider making paying off that debt a priority. There are some options such as refinancing or debt consolidation that can help alleviate some of the pressure of debt. If you are in credit card debt please read my post What to do if you are in credit card debt.
Hand-in-hand with increasing savings it’s also important to invest. I think everyone has a goal of retiring, and retirement typically isn’t possible without having a large amount of investments. If you haven’t started investing for retirement consider checking out our post 8 Ways to Start Investing.
5) Increasing “Passive” Income
Investing has the huge perk of also potentially providing you with passive income. I think everyone should have “increase passive income” as a lifelong financial goal. After all, if you are able to create enough passive income to live off of you technically never have to work another day in your life. Not only that, but you also don’t have to slowly deplete your savings/investments in retirement because your investments have created a sustainable passive income.
Some of you may be wondering what qualifies as passive income. To me passive income has to be something that requires little to no effort. Dividend income is the ultimate passive income because it literally requires zero effort for the investor.
I created a tool a while back that calculates how much money you would need to live off of dividend income. It has two calculators. One of the calculators you input a desired income and it tells you how much money you would need to invest to receive that much in dividend income. The second calculator allows you to input how much money you have to invest and it shows you how much dividend income you will receive from that investment. It’s a good way to get a sense of just how much money you will need for passive dividend income.
Another form of passive income is real estate. Real estate income can be very “non” passive if you are actively managing it and working on properties. But if you purchase a property and outsource the management aspect of being a landlord you potentially could have a relatively passive income source. Yes you will probably still have to make some decisions like “do we renovate the kitchen or leave it as is?” but it can be a great source of income for anyone looking to build passive income.
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While I strongly believe personal finance truly is “personal” and every situation is unique and different, there are financial goals everyone should be working towards. The amount of energy or focus that people have on each goal will vary tremendously based on their situation, but ultimately everyone should have these financial goals on their radar.
Which of these goals are you most focused on today? Which were you most focused on 5 years ago? Which goal do you think is the most important for millennials to be focused on?
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All solid goals to be living out and working towards DC. Looking back, I wish that I had started hammering on #1 earlier as many of these other ones flow out of that. That being said, we’re wanting to focus more on #5 ourselves and real estate will likely be the next one we focus on – we just need to get started on it. :)
#3 and #4 have to go together. Most young people will increase income at some point, but what you decide to do with it really sets how your future will be. Spend it on lifestyle improvements means working forever. Saving and investing means you can choose to walk away from the game and pursue other things besides your day job if you want. It would be great if we all loved our jobs for 40 years, but plan on that not happening.
These are all great goals to focus on. SInce I’ve already cut my expenses as much as I could, I’m now focused on earning more and creating multiple streams of income. Establishing a solid source of passive income is also a long term goal of mine.
I am currently in the process of working toward increasing regular income as I grow my business, but I think all of these are equally important. For millennials, I think that gaining financially confidence is a huge goal to achieve. I see clients make so many poor money choices and use the excuse that they just didn’t know. It’s easy to stick your head in the sand, but with some education and a sense of confidence, it’s amazing how much of a change you can make and the sooner you make those changes, the better you are long term.
FrugalRules Oh real estate can be exciting. It can also be expensive and draining on your time, I’ve found…but yes it has the potential to be a nice passive income stream.
Eyesonthedollar Great points, Kim. I think a lot of millennials think they will bring in more money than they actually will. I’m all for expecting the best, but you have to plan for the worst simultaneously.
Chonce I’m pretty much in the exact same spot as you, Chonce. I have cut my expenses as much as I reasonably can and I’m now focused almost 100% on increasing my income.
blonde_finance I agree, Shannon, that it’s much easier to say “it’s too complicated” or “I don’t understand.” It’s so easy to ignore personal finance, but in reality even reading one book or a few blog posts can really boost your confidence.
These are good guidelines that generalize to anyone. We’ve shifted from increasing our financial knowledge and increasing income 5 years ago to investing more, and to a lesser extent, cutting expenses. When the kids go to school we’ll focus on increasing income again, and are interested in real estate for passive income in the future as well.
That’s a very solid foundation. Right now I’m working on generating more income as well as being…not so much financially confident but financially…in charge. I guess that’s confidence right? :)
I am focused on increasing my regular income, but would really like to work on passive income!
I’m working on all of those goals. Currently I spend my most time on increasing my income, so that in turn I can increase my savings and investments to provide passive income for future years where I’m not earning at all, or at least not as much as I need to support my expenses.
I am working on all these but giving special attention to #4 and #5 because I absolutely want to continue creating wealth and passive income is my favorite kind of income. :) I do consider myself to be financially confident, but that doesn’t mean that I’m done learning. There is always more to learn! I am probably working the least on #3 and less focused on cutting expenses and more on making sure that I continue to spend money on the things that matter and cut the things that don’t.
All really solid advice DC. Although I’ve spent all my career working on increasing my ‘regular’ income, and after rising significantly since I started working 10 years ago, is at a point now where I’d have to really sacrifice other things in my life to take the next step with this. I’m actually leaning towards spending more time and energy on increasing passive income or other income streams instead, even if it meant cutting back on my regular income. I think this might help achieve a better balance in life, but when it comes to the crunch, I don’t know how easy it will be to take a voluntary pay-cut!
Great advice! Without a doubt, I am working most on passive income. And that growth cannot come soon enough ;)
Whoa! Did DC just say cut expenses? But seriously, these are great tips. I think financial confidence is key, especially if you are a bit like me in my early adulthood. I ended up buying a whole life insurance policy and a few other bad investments because I wasn’t confident. It took me a while to figure out that finances (even investing) is not rocket science (or when it is Occam’s razor is the correct tool).
Pretend to Be Poor I would LOVE to have a couple passive real estate investments. I would much prefer to outsource the management of it even if it means lower profits, mainly because it makes it more of a passive income stream.
Beachbudget Yes that is confidence! I’ve noticed through your blog and social media that you are really focused on increasing income lately. I hope you see some big returns from putting your time into that!
deardebt Yes, passive income is always the best! I have a decent amount of student loans and other things that my increased income will be funneled towards, but once that debt is gone I definitely want to put a lot of money towards passive investments.
ferventfinance I think increasing your income will have the biggest bang for your buck when it comes to what you focus on. It’s been my focus the past 3 years and it’s had a big impact on my life.
ShannonRyan Yes, Shannon, you are one of the most financially confident people I know! Passive income is definitely the best type of income. I love how it enables people to focus on the work they care about even if it doesn’t fulfill short or long term finances.
Jason@Islands of Investing I think we all hit that point where the “next level” is going to require so much sacrifice that it may not be worth it from a lifestyle standpoint – or possibly even an income standpoint. I think you are being smart about your approach to your career.
Financegirl Haha yes! Passive income is amazing. Unfortunately it also requires a lot of work to get to the point where you can funnel resources towards it.
Hannah UnplannedFinance The issue for millennials/young adults/20-somethings is there is SO MUCH going on in life that it’s easy to put financial education on the backburner. Most millennials I know are exhausted enough from their day-to-day life that they have no intention of prioritizing becoming financially confident.
Right now, we are focusing on numbers 3-5. We are just now starting to see some actual income from passive income streams we started a little while ago and it is amazing! Recently I got to the point where I realized I really need to increase my regular income. This is an issue I should have addressed a year or two ago, but I felt so lucky to have a job that I didn’t negotiate my super-low salary. I’m working on it though!
I love tip #3, DC. The regular job for the regular person, if optimized, can earn way, way more than just about any side gig or collections of side gig. There are exceptions, of course. But I think your biggest return is often on simply making sure your 9-5 is paying you what you think it should.
My main focus is increasing my income so #3 and #5 are the ones I’m working on now. I just received a very small raise at my regular job. I’ve only been there 8 months so I’m happy. Any extra money is good. I am trying to get my passive stream to grow. I have some updates that I need to make with my niche site.
Jason @ The Butler Journal It seems like you are really doing well at taking actions that will result in higher income. I know you’ve been really dedicated to increasing your income recently and it sounds like it’s been paying off!
DonebyForty I think #3 is oftentimes overlooked because people feel stuck in their job, company, career, etc. If you are willing to look outside your company or even your division at work you may be surprised what opportunities there are. There is also unexpected opportunities for people who are willing to speak up at work, too.
Settle Your Finances I was in a similar spot a year ago. I felt comfortable in my current job at work but knew I had to look for a change. The new job I got has really pushed me outside of my comfort zone and pays more, which is always ideal.
We are probably doing a little of everything right now. I have financial confidence, buy you can never stop learning. Diversifying our income sources is a big goal.
houseoftre Diversified income – especially passive diversified income – should be everyone’s ultimate financial goal imo. Some may never make it there, but it’s something to shoot for.