I think it’s safe to say that by our mid-twenties, most of us millennials have received ample financial advice — be it desired or unsolicited. Oftentimes much of it boils down to the same few nuggets of wisdom. We hear those same phrases over and over throughout our childhood and young adulthood so often that sometimes, the value behind them begins to lose its potency.
I know that personally, the phrase “don’t live beyond your means” was a household mantra. If I had a dollar for every time I’d heard that from my dad growing up, I wouldn’t need to be worried about following it! (Editor’s note: see Helen’s bio below).
This week, we’re lucky enough to be working with TD Canada Trust to get to the bottom of what these oft-heard universal personal finance phrases really mean. According to a recent TD survey, the three most received pieces of advice from parents and guardians to millennials have been to live within their means, to save a percentage of each paycheque, and to save for a rainy day.
These are all wonderful pieces of advice, and every millennial should be following them to the best of their ability. However, sometimes these overgeneralized statements ( especially something like “saving for a rainy day”) aren’t helpful to a millennial who has yet to encounter a “rainy day,” and so doesn’t know what to expect from it.
This is where Shirley Malloy, TD’s associate vice president of Everyday Banking comes in. She is here to share a few ‘Moneyhacks’ that will turn these financial ‘truths’ into measurable goals that any millennial (or other financially-inclined individual) can implement.
Nugget #1: Don’t live beyond your means
Actionable takeaway: Don’t mistake credit for cash.
The first thing to understand here is what your ‘means’ are, by evaluating the amount of money you have coming in versus the amount of money that is going out. “Track spending against a budget that accounts for essential and discretionary expenses, savings and debt payments. An advisor can help set targets for each category based on your situation, but generally, if you need to lean on credit to fill the gap each month then revisit the budget and make necessary adjustments right away,” suggests Malloy.
The simplest form of this advice is to avoid any and all debt at all costs. Though in general it’s advisable to remain debt free, Malloy advises to instead use credit as a valuable tool to build future net worth. The trick here is to know what kind of debt to work with. For example, a mortgage or student line of credit are examples of the type of debt that can be considered an investment, and will help to generate income in the long term. Credit cards, on the other hand, especially those with high interest rates, used to fund short-term lifestyle spending are the type of debt the adage is referring to, and should be used sparingly and responsibly. The most important thing to keep in mind regardless of what type of debt you enter into, is to have a solid plan in place to pay it back.
Nugget #2: Save for a rainy day
Actionable takeaway: Save for a rainy three to six months.
No one ever thinks the terrible “rainy day” will happen to them. We hear about it happening to others, and we pity them, but we always think “Oh, that could never happen to me.” Stepping out of that mind-frame is paramount to successfully implementing this second financial phrase.
Malloy says everyone should aim to set aside three to six months’ income as a financial buffer against any unexpected life events. From a leaky roof to a sudden job loss, this can cushion the impact of unplanned costs or loss of income down the road. Additionally, and somewhat more encouragingly, having this buffer in place can make it easier to do things like relocate for a new job opportunity or go back to school.
To begin building this important and necessary fund, plan to save a two month buffer this year, and increase to four months once you’ve reached your goal,” says Malloy. “For someone who makes $65,000, saving $210 a week for a year would build up a two month buffer of around $10,800.”
Nugget #3: Save a percentage of every paycheque
Actionable takeaway: Save 10% of every paycheque.
So far, we’ve covered our bases to keep ourselves afloat financially. But what about investing in ourselves, or ‘paying ourselves first’? Malloy points out that setting aside 10% of every paycheque will allow us to invest in ourselves by funding the really important stuff like vacations, educational pursuits and hobbies.
The best ‘Moneyhack’ Malloy offers is to set up an automatic transfer of $50 to a savings account. Then, set a bi-monthly meeting in our calendars to have a time carved out to revisit the budget and look for opportunities to increase our savings slightly. Make it a challenge to reach a goal of saving 10 per cent of each paycheque over time.
As millennials, we are often bombarded with advice from all sides – friends, relatives, the media. Malloy offers here one final thought about accepting that advice. “If you’re offered general financial advice, ask yourself if you can apply it in a realistic and measurable way, otherwise, politely tell [whoever it is] to keep their nose in their own pocketbook.”
Helen Chevreau is a student teacher, blogger and global adventurer. She also happens to be the daughter of Hub CFO Jonathan Chevreau. She has a B.A. in English and has been blogging for four years. Her next stop is Scotland for postgraduate studies in education.