By Robb Engen, Boomer & Echo
Special to the Financial Independence Hub
Millennials need to develop an entrepreneurial spirit in order to succeed in today’s economy. Gone are the days when you could graduate debt-free, get a job with a stable employer, work for three decades and retire with a healthy pension.
Today’s workers change jobs every four to five years, and they’re no stranger to layoffs due to budget cuts and downsizing. Full-time continuing employment has been replaced by year-to-year contracts, meaning there’s little chance of latching onto a pension. A good health and benefits package might even be a stretch.
A traditional emergency fund meant setting aside 3-6 months worth of expenses to get you through a long period of unemployment. In real terms that meant having $10,000 – $20,000 cash sitting there earning next to nothing in interest.
Building multiple income streams
But a better way for Millennials to combat the threat of job loss – or job uncertainty – is to build up multiple income streams outside their traditional day jobs. Think of how much you’d need in terms of a traditional emergency fund, and aim to bring in that amount each month.
Say, for example, your family could get by on $2,500 per month if you were in a pinch. That means taking care of the bare essentials like your rent or mortgage, plus utilities, insurance, gas to get around, and putting food on the table.
Could you find a way to earn $2,500 per month on the side? In the TV series, Til Debt Do Us Part, host Gail Vaz Oxlade will dissect a couple’s budget and often ask them to find ways to earn more money.
Examples include freelance writing or photography, building websites for small businesses, lawn care and snow removal, tutoring, selling for an MLM company like Avon, doing manicures/pedicures or running a hair salon from home, offering home or commercial cleaning services, and doing odd construction jobs. The list goes on.
A more passive approach might involve renting out your basement or another room in your house. Sean Cooper, a 30-year-old pension analyst in Toronto, will be mortgage-free later this year thanks in part to his multiple sources of income. He rents out the upstairs of his 3-bedroom bungalow to a family for $1,550 per month.
Read Sean’s story about becoming mortgage-free here (or here at the Hub)
It’s unlikely that Generation X or Y will be able to retire at 55 with a full pension. Following the traditional path of our parents and grandparents will more than likely lead to us working until we’re 70.
Gail Vaz Oxlade’s case studies on TV, and Sean’s journey to mortgage freedom, might sound extreme to some. But the point they’re trying to make is that you can accomplish your financial goals with a bit of hard work and ingenuity. Getting out from under a mountain of debt, paying off your mortgage in five years, or reaching financial independence in your 40s is possible.
In my case, a healthy side business involves running two blogs, doing some freelance writing for several online publications, and offering fee-only financial planning. The income earned outside my day job allows my wife to stay home full-time to look after our young family while still meeting our savings goals.
By developing multiple income streams now, Millennials can protect themselves against future job loss. And by saving that money, as opposed to just increasing your lifestyle, you’ll fast track your financial goals.
You’d be surprised how quickly you can accomplish your goals when you can earn an extra $1,000 or more per month.
In addition to running the Boomer & Echo website, Robb Engen is a fee-only financial planner. This article originally ran on his site on June 7th and is republished here with his permission.