Here’s how millennials can save, invest when they are just getting by
Ever since she was a little girl, Kate Strauss says she heard Hollywood calling her name.
“I’ve always wanted to act and write, so after college, I moved to L.A.,” says Strauss, a comical, bubbly millennial living her dream.
After graduating from the University of Arizona in 2014 with a degree in acting, Strauss headed to Calfornia.
While pursuing acting, she’s also taken on production jobs “because they’re fun, and I’m learning a lot,” she says.
The work is also keeping her afloat financially. “On a production job, I can make up to $3,500 a month after taxes,” Strauss, 24, explains.
Her income sounds cushy for a recent grad with less than $1,000 in student loan debt. But as a freelancer, her take-home pay can dip to $1,500 a month. She may have an acting or production gig for a time, followed by a waitress job, she says.
“Honestly, I’m living month to month,” says Strauss, whose bills include rent, food, cellphone, and car and health insurance. The rent is manageable at $850, but Strauss also spends $400 to $600 a month to buy organic groceries and another $100 per month for personal upkeep, including salon appointments for her hair, nails and eyebrows. It sounds L.A., but Strauss says, “It’s the cost of doing business as an actress.”
Still, she’s tried to cut back. “I canceled out my gym and yoga memberships, rarely eat out, and drink coffee at home instead of buying lattes,” she says. For emergencies, like recently needing new tires for her 2008 Toyota Camry, Strauss’ mom helps out.
For now, saving and investing aren’t happening.
“I don’t invest because I literally don’t have any extra money,” she says. “But I’ve been listening to business guru Tony Robbins, so once I can afford to, I plan to invest.”
Now in their 20s and early 30s, young millennials like Strauss have yet to embrace investing in stocks to reach longterm goals, like funding retirement, surveys show. Nearly half of this generation — America’s largest — say that investing is too risky, a BlackRock study reports. And just like Strauss, four of 10 say they don’t have enough spare income to put aside for the future, according to a just-released survey from Stash, a financial app.
In the fall, she aims to start putting money in index funds, a type of mutual fund designed to match the components of a broad market index like the Standard & Poor’s 500 index.
“I used to have the ‘money is evil’ mentality, but as I get older and read more about investing, I realize there’s nothing wrong with wanting to be comfortable and not having to worry about your finances,” Strauss says. The expert advice Rianka R. Dorsainvil, a certified financial planner and founder and president of Your Greatest Contribution, a financial planning firm in Washington, D.C., applauds Strauss for being a go-getter. She says savings must be a priority. Dorsainvil offers steps that Strauss and other millennials can take to jump-start their savings. Understand your cash flow. “You have to assign every dollar a job, so start with a budget,” Dorsainvil says. She recommends the “You Need a Budget” app. Users learn how to stop living check to check, get out of debt and save more. It’s free for 34 days, then costs $50 per year.
Pay yourself first, period. Save 5% in an emergency fund and 10% in a retirement account, Dorsainvil says. “For Kate, I would suggest a Roth IRA because she is in a very low income tax bracket, which means she will pay less on the contributions she makes today than she would 10 years from now when her salary increases,” she says.
Enlist an accountability partner. “Find someone you strive to be like financially,” she says. “They are intentional about their spending, they are saving and they are open to teaching you what they are doing.” Choose a person who wants to see you win.
Avoid lifestyle creep. For instance, if Kate lands a new acting role and her salary increases by $20,000, she may want a larger apartment. But, Dorsainvil warns, “Instead of ditching your roommate and renting a more expensive apartment, stay where you are and continue to live off of your starting salary as long as possible,” she says. Put your raise to better use by saving 50%, applying 30% toward paying off debt and spending 20% on what you want.
Learn money basics. Our expert recommends Nerd Wallet and XY Planning Network, a fee-only group of financial advisers committed to serving Gen X and Gen Y clients.