If you are a Millennial, I am so excited for you and your future. You are at the start of an exciting adventure ahead of you, with so many opportunities and experiences. And I want you to make the most of everything that crosses your path.
And to help you have the freedom and luxury to be able to seize all these opportunities, you need to have strong healthy grounding around money and managing your money. I want to help you create a future where finances are never an unmanageable obstacle in your life holding you back, or worse blocking you from your dreams and success.
So here are 5 basic, simple and easy things that you need to know as a Millennial to help project you into an incredible future for yourself financially.
1. Good Debt vs. Bad Debt
Okay so good debt is healthy debt. It is money that you borrow to help build further financial freedom and independence. The asset that you borrow with borrowed money ideally grows in value and also provides you with a passive income. The cost of borrowing that money (i.e. the interest) may even be tax deductible to you.
Bad debt, or as I like to call it, “Toxic” debt, is money that you borrow to buy assets or experiences that depreciate in value. Such as clothes, make up, cars, even holidays. These assets pay no passive income and the interest isn’t deductible and normally the interest is much more expensive than interest is to buy financial assets that grow in value.
Aim to minimise toxic debt as quickly as possible or simply not have it at all. To work out how to get out of debt, watch this.
Your credit score is a number that tells the banks how reliable you are when it comes to borrowing money. The higher the score, the more likely you will be to get your loan approved. Now if you have any financial or personal goals to buy things such as a home or investment property, this is really important. Because without knowing what your credit score is, you won’t know if you are a suitable candidate to be able to borrow money in the first place. So if you have big goals and dreams, find out your credit score – which is quick, free and easy to do. And you can find it out right now here.
3. Simple interest vs. Compounding Interest
Most people don’t understand the difference between simple interest and compounding interest and this is often the reason why people can get into massive credit card debt so quickly. Simple interest is the cost of interest on the amount borrowed. For example I borrow $1000 and the interest is 9% p.a., the simple interest is $90 p.a. As long as I always pay the $90 p.a. my loan will always stay at $1000.
Compounding interest is different. Say I didn’t pay that $90 each year in interest on the $1000 loan, well each year my loan would compound, (as in get bigger) after year 1, my loan would be $1090, and assuming that I didn’t pay interest again in year 2, the interest accumulated would be 9% on the $1090 loan, so now my cost of interest is $98.10 (9% x $1090) so each year my cost of interest is compounding on that original $1000 loan as it is now charging me interest upon interest and also my loan is getting bigger and bigger.
4. Small & Simple Habits Everyday
Creating small and simple habits with your finances, results in a much healthier financially secure situation. So create habits such as paying your credit card off in full each month, putting a little bit extra into your super account each year above your employer amount, start a regular investment plan where you build up a share portfolio that pays you a passive income. Or even a simple savings account where you put 10% of every dollar you earn. Easy simple habits over the long run have a powerful effect because this time the compounding interest is making you money rather than costing you money. See the difference now?
5. Have A Budget
Look at where your money goes and take back control. Always have a budget and regularly update it as your lifestyle and goals change. When you understand your true cost of living, you can prepare for large expenses, set exciting savings goals and always feel in control and empowered to know that you are not only creating financial peace in your life but also building realistic financial independence for yourself. If you don’t know how to do a budget, you can use the one that I designed for my YouTube subscribers here. It is easy to use and makes managing your money fun and empowering.
If you can follow these simple steps, continue to educate yourself around money and how to get your money working for you early in life, I personally promise that you will never regret it. Best of all, you will start to realise how powerful and capable you are in achieving your own financial goals and dreams but doing it in a wise and sensible manner.