What does financial independence mean for millennials in the middle of a world crisis?
The Covid-19 pandemic brings not only physical, but also financial challenges for entire world. Most economies are now facing crisis. Many industries have already declared bankruptcy, and most businesses are now threatened to shut down. With this, planned investments might be put on hold for a moment as the risk is significantly high and the idea of possible losses is unbearable.
These times, many probably assume that financial independence will be impossible to attain since the employment rate has significantly dropped over the year. One of the most affected population is the millennials.
Many millennials may see this as unique obstacles. Other millennials saw a silver lining. It became an opportunity to adjust their expenses, savings, and investment attitude. Some even say that the pandemic has helped millennials transition into adults.
If you are a millennial, this means that you have taken more responsibilities from their daily habits to their long-term finances. One of the adult requirements many millennials would like to achieve is building wealth and becoming financially independent.
However, anything worth having is not always easy to have. This is probably why only a few people can actually say that they are financially independent and living with financial freedom. It takes a strong will and hard work to focus your energy on something you really want to achieve.
The same goes for achieving financial independence. It's easy to say that you're going to be more responsible with your finances from now on. But once you start taking the path, you'll find out that it's not as easy as it sounds.
For starters, here's a tip—investing in real estate and saving for your own house and lot is actually a pretty good start. No matter what the situation of our economy is, your real estate investment does not depreciate in value over the years.
What are the ways millennials can achieve financial stability?
The financial planning landscape for millennials may be different from the generation before and after them. Income levels among millennials also vary. You will find some millennials starting to build wealth while others are still paying off student loans. That said, there is no singular guide to achieving financial freedom.
However, there are steps that you can take towards financial stability. Below is a millennial's guide and inspiration to pave your way to building habits and become financially independent:
Visualize your current financial status.
Get a reality check. Start by considering to imagine what financial independence actually looks like to you. If you can, get the advice of a financial expert so you can examine your current financial circumstances. And then, focus on what financial independence means to you and make it your basis to create your plan.
Make it a tangible goal with set timelines.
You should know that the path to financial independence is not the same for everyone. It may be much different at age 25 than it is at age 40. The longer time you save, the better investment outcome it will produce. But regardless of age, always start with a realistic vision of your options.
Understanding your financial situation is a must.
Financial planning is not just about making one planned financial decision and assuming you are all set. Change can happen at any point in our lives. As a result, situations and your financial planning must be flexible enough to endure both positive and negative changes without putting your hopes for financial freedom at risk.
Keep track of your expenses.
Always live below your means. This is probably the basic rule in spending. It might be simple, but it's one of the financial rules that are very hard to keep up with. Once you have the habit of excessive spending, it's very difficult to eliminate. That is why commitment is also the key to be financially independent.
Adhering to the rule of always spending less will help you put more of the portion of your income into savings and future investments.
Downsize is very important to achieve the amount of savings you set for yourself. How fast you will reach your wealth financial objectives depends primarily on how much you can downsize your overall living expenses. For some, it may mean less spending on online shopping or less travel. For some, it may mean selling a property to earn something for future investments.
Additionally, you must always take into consideration the costs you will incur moving forward and begin pursuing your goals. This will help you avoid falling into a financial pit. Always remember the formula of saving. Income should always be subtracted first by the amount of savings you intend to commit every month. And then what's left is the only amount you will have to use to allocate all your expenses for the month. If you have a sense of your budget expenses and saving patterns, you can always prepare for your future.
Develop good budgeting and saving skills.
A budget does not have to restrict in order for it to be effective. You need to see this as your guide or financial checker in order to keep you on track with your financial goals. A budget should include the total amount of money you expect to bring in and then the total amount of expenses you have calculated. This amount of expenses may include your rent, insurance, discretionary spending, such as travel and eating out. Once you have a clear picture of your income and expenses, you will know right away which areas in expenses need to be cut and what other things you should do in order to maximize your income.
It may appear, though, that making a budget is not as easy as it sounds, but it is actually very important in order to keep your finances in order. The budget actually relies on balance. If you spend less in one category, you can spend more in the other, or you can save that money for an investment, build an emergency fund, increase your savings growth, and invest in building your wealth.
Eliminating your debt is also essential in order to successfully budget and save. If debts remain unpaid, the interest will accumulate, and that interest is equivalent to the loss in income. That is why this should be prioritized. Once you start freeing yourself up from debt, you will have more control of your savings and investments.
Another great tip in order to maximize your income and savings is to consider your career and other skills that may help you generate additional income. Apart from the steady income, you have from your main career, you can try making a profit out of the skill you have. Online selling is very progressive this time. If you love to bake or you love to design shirts, you can sell that online and receive extra money for that. These side hustles will help you build a separate portion of the income you can allocate in investments.
Set up a smart safety plan.
If you are capable of building an emergency fund or a safety plan, it's the first step towards financial independence. With that security you have in place, which should be able to cover three-to-six months' worth of expenses, then you can feel free to move an unused portion of your money into wealth building and income-generating tools.
Emergency funds and insurance are very important. These emergency funds can be used in times of unplanned expenses such as a sudden renovation in your house and lot or an unexpected health medication. If something really unexpected does happen, you'll be glad you have your smart safety plan to back you up with.
Meanwhile, many probably think of an emergency fund as just a separate account for cash. However, this smart safety plan should be more than that. This should depend on your personal and family situation. If you are young and living independently, getting health and life insurance can be your option if you don't have a huge amount of money to spare at the moment for your safety plan. Don't assume that all insurance is very expensive; in some cases, the monthly premium for a health or a life term policy is much cheaper than the cost of a data plan for your mobile phone.
You can also save and keep your emergency money in an insured savings account, like a rewards savings or money market deposit account. Remember, it is never smart to invest your emergency fund because you should keep it absolutely safe from market instability and risk. It is a bonus if you can earn any interest rate on your emergency fund, but remember that you need to protect those funds like a treasure that you can just grab right away if needed.
Invest early and wisely.
Wealth does not grow from savings. You need to invest in order for that money to grow over time. Although keeping money in a bank account appears safe, the interest you'll earn isn't enough to keep up with inflation over many decades.
You can start venturing in real estate as a promising start. This will guarantee a return of investments at a much bigger rate than any other investments you have. Just make sure you choose the best location because this factor is very important in assessing the value of the real property over time.
Some also prefer investing in properties such as house and lot, or even just a bare lot. This investment is also rewarding as this can actually be a good investment for you and your family.
You can also venture into the stock market. This one is very popular for its compound returns that not only keep up with inflation but also outpace it. If you take the time to learn how compound growth works, you will quickly understand why you simply must start investing today.
You will also need to build a risk appetite when making investments. While this may seem like a big step, it is an important step for anyone aspiring to achieve financial freedom. Risk is an inevitable factor of investing. However, how much risk one is willing to take on can be measured.
Keep in mind the risk tolerance while fixing your financial goals. Being able to know the threshold of financial losses you can sustain and your tolerance for unstable markets is important as this will help secure your financial future.
Once you have invested in something, always keep track of this regularly. Investments involve a lot of effort to sustain and grow, which is why it is best to keep track of your money.
Lastly, you need to educate yourself.
Before making a leap into the stock market, it is important to learn how this works and all its basics. Even a general knowledge about financial news coupled with even a disciplined habit of learning will pay off in the long run.
At the end of the day, patience is always a virtue. As the famous saying goes, "Good things come to those who wait." This can be applied to the financial world as well. Many look for fast generating profits investments; however, such a rush can lead to a financial loss. Instead, try to look at your investments as a long-term exercise because healthy profits take time to build.
Remember, all of these little disciplines, when combined together, can form a good foundation of a financial management system to hold you in good stead in the future. It is crucial that you don't overdo any of the above-mentioned tips to be financially independent. Although it is exciting to eagerly cut down your expenses without considering your expenses first, too many cutbacks could lead to a backfire. Instead of saving for the long term, you might experience burnout and forgo the savings altogether.
You can always try first one of these financial habits to see how they feel. If you happen to like a strategy, then you can keep it and add another. If you hate the idea, then let it go and try something else. After all, there is no fixed strategy that should be followed in attaining financial independence. It is more on how you gauge yourself and an experiment of what works for you. Do not forget, financial independence involves a lot of diligence and sacrifice, but know that these financial baby steps you are taking can yield big outcomes in the future.
The pandemic may have posed significant challenges to our finances for nearly two years now. As we face unprecedented times, we may also encounter unusual financial problems.
As times become challenging, managing wealth and growing it is also getting harder. This is why some of us turn to a certified financial planner or financial advisor to handle all the money management on our behalf.
Some may also need tax planning, personal finances, and investment advice.As several consumers turn to comprehensive wealth managers for guidance in putting together a financial plan, it becomes significant to make sure the firm you choose is the right fit for you and your family.
What is wealth and asset management?
Wealth and asset management aim to increase market value from the ownership of assets like stocks and real estate properties. Choosing your management firm can be one of the most important decisions you make.
Every client is different, and every wealth and asset management firm has different strengths and weaknesses in helping people who trust them. With this in mind, let us take a deeper look at five things to consider when choosing a wealth and asset management firm to secure your financial future:
What to look for in financial planning and wealth management services?
Competence and Experience Does the firm have the skills to deal with the complicated issues that your specific situation will present? Beware of advisors who claim they deal with thousands of clients, just like you! Certainty, it is rarely the case that the two clients face similar situations or concerns.
You also strived hard for your money. So it would be unwise to entrust it to someone that lacks wealth and asset management experience. A new wealth management firm is likely to make a lot of mistakes as they learn the ropes. But their mistake should not be at your cost. Look for a financial services expert who has been around for decades and has built wealth and assets for a significant number of clients.
It would be wise to ask the advisor to discuss some of the clients they have helped with circumstances the same as yours and some specific examples of the type of help the advisor can provide.
When it comes to the services offered by firms, very few investment portfolio managers have the same capabilities. Make sure you choose a management firm that not only suits your needs today but is a safe bet for adapting to them tomorrow and the future, as well.
Will the firm be able to continue to deliver the service you and your family will need for an uncertain future? Make sure that you are working with a wealth manager to do the same. Look for a firm with a step-by-step plan to ensure its ability to continue serving clients well into the future.
Can the firm provide access to a variety of services, products, and best-of-class investment ideas? Be sure to also ask where they previously worked and if they are a certified or registered financial planner. While working with a wealth manager, make sure that your financial goals and needs are prioritized and avoid getting swayed out of your comfort zone. Do make sure to check the credentials of your prospect manager and see if they have the experience that you need so you can have a productive start.
Fortunately, there are many online sites that can help you find registered financial planners near you. Always make sure you find someone that has already walked the walk before they talk the talk.
There are many ways that wealth management firms make their money from clients. Some will be charged on a commission basis depending on the type of products and services you hire them for, and others may offer clients a fixed rate that varies based on the size of your portfolio.
Be sure to hire financial advisors who will invest in the growth of your portfolio like you. With this in mind, it can be a wrong move to hire someone who alone charges a commission based on what they sell you. There is always a risk that they will prioritize their own interests more than growing your portfolio like you wanted to.
Though this is not a reason to reject a wealth advisor altogether, you should inquire about compensation arrangements that could jeopardize your personal finance or the firm's independence and objectivity.
Several consumers, wealth, and asset management firms benefit from long-term relationships because it often takes years for a proper plan to realize its entire value. Therefore, an investor should ask complex but fair questions before entering into an advisory agreement to ensure you have the best chance of financial success.
They are also different from real estate property managers that oversee operations and physical structure.
The real estate industry has its own inevitable challenges and economic problems like what happened in the housing market during the last financial crisis. It is a popular way to invest and can be a fence against the stock market. After all, you cannot put all your eggs in one basket, right?