Monday, October 27, 2014

Money Monday: Top 2 Habits Millennials Should Develop to Grow Wealth

Born after 1980? Welcome to the club, fellow Millennial.
While our age range seems to catch a slightly bad reputation (and gets plenty of bad nicknames),
studies about Millennials have shown us to be a very well educated (and optimistic) group.
And, with recent studies showing that 40 million consumers carry at least one open student loan,
we're also heavily burdened by student debt. Irregardless of your age group, this edition of Money Monday looks at two important things to keep in mind when your goal is growing your future wealth. 

1. Spend (and save) smart
 Think about it this way:
You go out for lunch every day with coworkers and spend $15.
Go five days a week? That's $300 in one month.
Go every month each year? That's $3,600.
If you start at age 25 and invest that $3,600 a year into an IRA (Individual Retirement Account) or a 401(k), with an average annual return of 7%, you'd have almost $1 million by your mid-60s.

While I'm not saying you should never spend money on clothes, food/entertainment, etc., the key here is to be smart about it. Beyond the widely heard mantra "live within your means," one of the biggest things to keep in mind is your financial goals. If your major goal is to grow your wealth, it would be wise to evaluate/reevaluate where you are spending your money now. Sure, use a budget…but be realistic. Break everything down, and decide (honestly) what extras you can/cannot live without. Including the extras in your lifestyle isn't a huge deal…but you should be including them in your budget. You don't need to beat yourself up too much over going a little over your extra allocated budget but, if you do, be sure to examine why (and balance it with your next month's budget).
If you went over by buying lunch/food a few extra times, because you were in a hurry or had "nothing"at home, try planning and preparing your meals in advance.
Also, don't be embarrassed to use coupons. Even if it doesn't seem like you're saving much each time, those times add up easily. Look at it as getting free money from a store. (Who doesn't like free money?)

2. Care for your credit
According to a May 2014 study from the Consumer Federation of America, most Millennials don't fully grasp just how important (and far-reaching) credit is to their entire financial life. Only 18% understand the types of businesses (i.e. credit card issuers, utility companies, lenders, cell phone carriers, etc.) that affect credit, and also use credit to evaluate you as a potential customer.
According to a study from Experian (a nationwide credit bureau), many Millennials have poor credit because they don't pay their bills on time. If you're frequently late in paying your bills, realize that your payment history is the most important part of how your credit score is calculated.You may have a great no-fee credit card with rewards, but carrying balances or making late payments could
mean high-interest rates will invalidate any benefits. If you carry a balance you could be paying a
variable interest rate as high as 19%. And if you make payments late or use too much of your credit,
you could be hit with a penalty rate which could run north of 30%!
Something else to be careful with, when it comes to your credit score, is how often it's checked. Inquiries into your credit score are classified as, either, being "hard" or "soft." Hard inquiries happen when you apply for any kind of credit (i.e. credit cards, auto loans, mortgages), and can lower your score. Soft inquiries happen when you or your employer check your credit (or even when a creditor checks your credit to send you an unsolicited offer), and they do not impact your score. Hard inquiries stay on your credit report for two years. Having a lot of hard inquiries can be very detrimental. If you're frequently expanding the amount of credit you have available, it may be viewed by potential lenders as an attempt to expand the amount of debt owed. This is seen as an increased risk that a borrower will not pay back a loan, and could make it much more difficult for you to grow future credit.

While these two factors are very important, these aren't the only things that can impact future financial success. Remember, if you have the drive to work for it, you can make anything happen.

As always, feel free to send your thoughts to:

Happy Monday!
xxxx Alyssa Marie

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