Financial Planning Guide & Tips for Millennials

Millennials and Gen Z are facing a rough time with many challenges not faced by generations before. 

Young Australians are facing more financial stress with housing unaffordability, inflation, rising costs of living and interest rates, and unstable income from the gig economy. 

According to NAB economics data, more than half of 18 to 29-year-olds experienced some form of financial hardship in the last 3 months. More than two-thirds (67%) of Australians under 50 attributed the rising cost of living as their biggest reason for stress. Less than half of people over 65 said the same.

If you’ve been facing uncertainty with your finances, you’re not alone. 

The path forward may be daunting but it is important to make a plan and get help when you need it. Here are our financial planning tips.

Understanding the Millennial Financial Landscape

The Millennial Advantage: Digital Tools

Millennials have one significant advantage at their disposal: an array of digital tools and resources. Online budgeting apps, investment platforms, and educational resources make managing personal finances more accessible than ever. It’s crucial to leverage these tools to gain a clear understanding of your financial situation. Begin by tracking your income, expenses, and savings goals. This foundational step will help you take control of your financial destiny.

The Challenge of Debt

While digital tools can empower millennials with financial planning or new opportunities, they also come with risks. Easy access to credit and online shopping can lead to high levels of consumer debt. Managing student loans, credit card debt, and personal loans can be overwhelming. Our first financial planning tip: pay the high-interest debt first. It will reduce your overall long-term costs. 

The Gig Economy Dilemma

The gig economy, which offers flexibility and a chance to explore various income sources, has become a double-edged sword for millennials. On one hand, it provides opportunities for side hustles and increased earnings. On the other hand, it often lacks job security and benefits, such as employer-sponsored superannuation. To overcome this challenge, consider setting up a self-managed superannuation fund (SMSF) to take charge of your retirement savings. It offers more control over your investments and can potentially yield better returns over time.

Our Financial Planning Guide for Millennials

Set Goals

Financial planning for any millennial should begin with setting clear and achievable goals. Ask yourself: What do you want to accomplish with your money in the short and long term? Whether it’s buying a home, paying off student loans, or building an investment portfolio, having well-defined objectives will guide your financial decisions.

Understand How You’re Spending Your Money

To make informed financial decisions, you need to understand your spending habits. Tracking your expenses will reveal areas where you can cut back and redirect funds toward your financial goals. Several budgeting apps can simplify this process and provide insightful data on your financial behaviours.

Don’t Stress Out

Being responsible with your finances can be stressful – especially for millennials dealing with student loan debt and the rising cost of living. In this endeavour, remember to look after your mental health. Stress can negatively influence your decision-making and overall well-being. When you’re stressed, you’re more likely to spend money on impulse purchases and reduce your ability to think clearly and innovatively.

Seek support from friends, family, or professionals when you’re feeling overly burdened and need some help. 

You can also contact mental health or financial counselling servicing helplines to access the support you may require:

• National Debt Helpline 1800 007 007 (financial debt helpline)
• Mob Strong Debt Help 1800 808 488 (debt helpline for Aboriginal and Torres Strait Islander people)
• Beyond Blue 1300 224 636 (mental health helpline)
• Lifeline 13 11 14 (suicide prevention helpline)
• MensLine Australia 1800 61 44 34 (counselling helpline for men)
• Q Life 1800 184 527 (counselling helpline for LGBTIQ+)

Set Budgets

Once you’ve gained insight into your spending patterns, it’s time to budget. Allocate yourself reasonable amounts based on your past behaviours to cover your essential expenses: like rent, groceries, utilities and fuel. Based on your financial goals, also set aside a target each month for savings and an amount to invest. 

Having a well-structured budget helps you get and stay on track when it comes to managing your finances.

Have an Emergency Fund

Financial emergencies can happen when you least expect them. An emergency fund acts as a safety net, covering unexpected expenses like medical bills or car repairs. Aim to save at least three to six months’ worth of living expenses in your emergency fund.

Invest Your Money

Once you’ve tackled immediate financial needs, you should also consider investing your money for the long term. Investing can help your wealth grow over time. While it is important to save money so that you can use it when you need it, like a big important purchase you are planning towards, the value behind the money you’ve saved can decrease over time. 

Investing your money has the potential to provide the opposite effect: with your money passively increasing over time. However, it’s important to understand, that, unlike a high-interest savings account, investing comes with a risk. A general rule of thumb for responsible investment practice is to diversify your investments and consider your risk tolerance with anything you invest into: stocks, bonds, real estate, etc. A financial advisor can help guide you with advice on understanding what investments might make the most appropriate fit for your goals, risk tolerance, and other personal interests. 

Make the Most of your Tax Deductibles

Australia offers various tax deductions and incentives for individuals in regard to assets and work-related expenses and activity. It’s important that you understand all the deductions that you can claim when you’re filling out your taxes. Seeing a tax accountant can advise you in knowing what receipts and invoices you can bring in, and fill out your tax return to help you get the most back and meet compliance requirements. 

Discuss Salary Sacrificing or Packaging

Salary sacrificing or packaging allows you to redirect a portion of your pre-tax income into benefits like your superannuation or a novated lease for a car. This not only reduces your taxable income but also offers you the potential to save more.

Consult with your employer or a financial advisor to explore these options.

Pay Off High-Interest Debt

High-interest debt, such as credit card balances, can quickly eat away at your financial progress. So when you’re looking to reduce spend and the ways you’re losing money, put paying off your most high-interest debts first on the list. It’ll free up more of your income for saving, investing, and other small purchases that help you feel good. 

If you have multiple credit cards, debts or loans, also consider ways to consolidate them together to reduce admin spend and to take back control when it comes to tracking your interest payments. 

Maximise Your Superannuation

Your superannuation is the key to a comfortable retirement, so it’s important to take your super seriously. Start by consolidating any multiple accounts to minimise fees and consider making voluntary contributions. These contributions can help you maximise your retirement savings in the future and take the most advantage of the compounding effect over the years.

Extra Superannuation Contribution 

You can also make the most of your superannuation by contributing additional funds regularly. Consider making extra contributions before the end of the financial year to reduce your taxable income while increasing your superannuation balance.

In Australia, you can also use your super contributions to reduce your tax burden and assist you in investing, to help you come up with the funds to buy your first house under the First Home Super Saver Scheme. You can apply to have up to $15,000 of your voluntary contributions from any one financial year up to a total of $50,000 contributions across all years. 

Get Insurance

Protecting your financial future also involves more than just saving and investing. You need to secure yourself and your assets with insurance in the case of the unexpected. So remember to explore options like health insurance, life insurance, and income protection to shield yourself and your loved ones from financial burdens when something unexpected comes.

Consult a Financial Advisor

Lastly, consider consulting a financial advisor. A professional can provide personalised guidance, help you assess your financial situation, and tailor a plan to meet your goals. They have the expertise to help you navigate the complexities of financial planning and give you strategies based on your situation.

Verus Accountants and Financial Advisors is dedicated to helping Australians reduce their accounting and taxation fees through the efficiency of our staff and cutting-edge technological solutions. 

If you’re looking for some assistance to maximise your deductibles in line with your financial goals, contact us.