My Milestone Money series continues with those aged 26 to 41, or the generation labeled “Millennials”. This generation gets a bit of a bad rap because they’ve come of age surrounded by new and swiftly advancing technology, and in the age of convenience and service. This was the first “just Google it” generation throughout their high school education, and pressure from social media to project (and try to live) a certain lifestyle. They are furthest from their Baby Boomer parents when it comes to financial philosophies, which in many cases means they differ greatly in financial values and investment philosophies.
They’re juggling high student debt, like their GenX and GenZ counterparts, but they’re also now faced with financial goals and employment or income uncertainty in a gig economy as they expand families and create a home. Many of this generation are exploring self-employment or side hustles to help get ahead.
So this generation should be focusing on a few key areas, while also not feeling pressure to be or have certain things marked off their list. Let’s focus on what every Millennial should be considering at this stage of their lives:
Getting clear on debt
You don’t need to have lofty aspirations of debt freedom if you’re looking at student loans for advanced or multiple degrees, but having a clear plan to eliminate any and all non-mortgage debt is key here. This might mean making debt payments a priority over lifestyle choices for a few years, and forgiving yourself of any guilt that you may have around incurring credit card or line of credit debt for lifestyle expenses that were just the product of bad decision-making in your early adulthood. Now’s the time to course-correct and take responsibility for it all. Having a clear plan and forming better spending habits is key to being able to reach other financial goals later in life, and get off the debt-servicing hamster wheel.
Be realistic about homeownership
You may be wanting to get into the already competitive homeownership environment, but before you do be crystal clear on what that may mean for you and make informed decisions as opposed to one of FOMO (fear of missing out). You don’t want to become “house poor” struggling to make your mortgage and other housing cost payments each month. Consider taking an extra year to beef up your savings (positioning you even better for a mortgage) and look to increase your income. And of course, remember to be realistic with your expectations of what a “first home” might be for you, and expect to stay there at least 5 years to build equity.
PRO TIP: calculate what your total mortgage and housing costs would be in a home that you’d be pre-approved for (and include EVERYTHING from property taxes to putting money away for a maintenance fund) and if it comes to more than 30% of your total monthly household income, give it some more thought or talk it over with a financial professional who isn’t emotionally involved in the decision.
Insurance… Get it while it’s cheap and you’re healthy
You may think you’re too young to consider looking at life or disability insurance, when it’s actually the best time in your life to be doing just that. Committing to $20 a month for a life insurance policy won’t hurt the bank, but it could be double that when you’re in your 40s and realize that you actually DO need coverage. Some milestone moments when you DEFINITELY need to add life insurance to your financial portfolio are homeownership and children. This is when your employer-sponsored group benefits life insurance likely won’t meet your coverage needs.
The same goes for disability income protection coverage (short- and long-term disability insurance). This is one of those luxury benefits that not even all group plans will include. Why do you need it? Of course, not everyone will require this type of coverage, but if you’re the single or significant income earner in your household, don’t have this coverage elsewhere, and don’t have sufficient savings to wait out another government benefits claim (if you’d even be eligible for it), it’s worth having some of this coverage in place. If you’re self-employed, a freelancer/gig economy member, it should be a no-brainer. Protect your ability to earn an income.
Life and disability income protection insurance is also important to have outside of an employer-sponsored benefits program because as Millennials, you can’t expect to remain at your current employer for an extended period of time like your parents do in their careers. Millennials are changing employers on average every 5 years as they find other opportunities and work their way up their career ladders. Not every employer will have a comparable benefits package, so having your own in place will ensure that you’re covered no matter what.
PRO TIP: A gofundme campaign shouldn’t take the place of providing for your loved ones, or helping with expenses in the event of illness or injury. Having valuable coverage in place, and getting it BEFORE it’s needed, can benefit you and your loved ones exponentially.
Get clear on where to put your savings
You should be building savings and investments at this stage of your life (pay yourself first), but an RRSP may not be the best solution for you. Consider the benefits between investing in an RRSP and a TFSA… and know that they can both be invested the same way. If you want high returns on your money, but accessibility without penalty is important, the TFSA is a way to go. If you know you’ll be using these investments toward retirement and need a tax deduction, then head the RRSP route. Seeking guidance, especially in this area can really benefit you at this stage of your life because there is so much misinformation and misconception out there about the RRSP and TFSA especially.
PRO TIP: If you’re not ready yet to invest, be clear on the impact that inflation has on your cash savings, especially as inflation increases.
Put it on paper, make it legal
As Millennials, similar to GenXers, many may be focusing on careers and putting off marriage and children until later in life. This allows for the growth of assets and even to own homes as a single person then having a partner move in. In order to fully protect everyone involved, consider having cohabitation and pre-nuptial agreements drawn up. This shouldn’t be a contentious issue or even be seen as a curse on the relationship. You buy home insurance in case your house burns down, but you don’t ever expect it to. It’s just good to have that in place, right? Think of these legal documents as the same. It doesn’t have to be a costly endeavour and can even be completed with the drawing up of wills and powers of attorney. In short, if one or both parties are coming together with existing assets over $150,000, or even a significant amount of debt, an agreement can help to make it clear who would be entitled to what upon dissolution of the relationship.
Every person is unique, and while this is a generalization of what you should be considering at this stage of your life, nothing compares with a custom financial plan that focuses on YOUR unique goals, situation, and advice that’s tailored to you.