5 Practical & Proven Money Lessons for Millennials & Gen Z

profile Brett Holzhauer  |  May 22, 2023

Personal finance can make your eyes glaze over with boredom, or even cause such anxiety that you don’t even want to address it. It’s important to know that those feelings are valid, and that personal finance is personal to you.

And as much as some want to argue it's solely a number game — they’re wrong. It’s numbers on a budget list, but also an emotional and psychological battle that each person tackles differently. For example, some people don’t lose sleep at the idea of debt, while others may lose sleep over debt looming over their head. Neither person is wrong as their own individual experience and feelings towards money.

But as you begin navigating your own personal finance journey, there are a couple core principles that you can use to lay the groundwork of how you view and use money. Many of these rules can be used towards small money decisions, as well as your long term financial goals.

If you can do these seven things well, you will give yourself a great chance to build long-term, sustainable wealth for the long term.

Build your credit score, and guard it like a castle

At some point in your life, you will likely need a loan to accomplish a goal. Whether it’s purchasing a car, taking loans out for school or buying a home — you will need a loan at some point.

When you apply for a loan, the bank will look at your financial history to see if you’re eligible for a loan. Part of that history is your credit score, which is a number given to you based on your ability to pay back your debts. This score ranges from 300-850, and the higher your score is the better.

Your credit score is your absolute lifeblood to build meaningful wealth. If your credit score is low, it can lead to a number of unnecessary hurdles. For example, if you want to apply to rent an apartment, you could be denied because of a low credit score. Or if you want to purchase a vehicle, you could be stuck with a high interest rate loan — costing you thousands of dollars extra.

This can seem daunting, but building your credit score comes down to a few steps:

  • Pay your debts off
  • Check your credit score on a regular basis to ensure your information is correct
  • Keep your spending low

Once your credit score is in a good place, it’s now your job to guard your credit score like a castle. It can take a while to build it up, but it can also quickly fall if you neglect to pay your debts.

There is such thing as ‘good debt’

Debt is a very personal subject as everyone has a different experience with it. So depending on who you talk to, you will likely get a different answer. But there is a difference between ‘bad debt’ and ‘good debt’. Here are a few examples of each.

For example, carrying a balance on a credit card is always a bad idea. The average credit card interest rate now is just over 20%, according to the Federal Reserve. So what does this look like?

Let’s say you have a $2,000 balance on a credit card, but are only able to pay $100 per month. It will take you two full years to pay that off, and it will cost you $443 in interest along the way.

So how do you know what good debt looks like? It matches one or more of these criteria:

  • The debt is used to acquire, or improve the value, of an appreciating asset (i.e. A home)
  • The debt is used to invest in yourself (i.e. College education, start a business or build your marketable skills)
  • The interest rate is below 5%
  • You have a plan to pay off the debt in a reasonable amount of time

For example, if you purchased a home in 2020 when interest rates were at historic lows, it has likely appreciated in value and the overall interest on the mortgage is low. This is an example of good debt. If you use a credit card to purchase a vacation and slowly pay it off as well as high interest rates, that is bad debt.

Stay away from bad debt, and use good debt responsibly.

Live on less than you make, and invest the difference

The research is clear: the majority of people don’t inherit their wealth. The people who have amassed wealth have invested consistently for the long-term, while living on less than they bring in.

They didn’t gain wealth through day-trading stock options or having a massive salary working in tech. They simply did the basics right by living on less than you earn, and putting those extra dollars to work.

Here’s what that could potentially look like:

  • Let’s say you’re 30 years old and make $65,000 per year, but live on $50,000 per year and use the $15,000 every year to invest in a traditional IRA. If you do this every year for 30 years, at a 7% rate of return, you could have over $1.5 million in your retirement account.
  • Let’s say you’re 15 years old and working part time, and you decide to make a goal to contribute $100 per month into a Roth IRA until you’re 55 years old. Your total investment is $48,000. At a 7% rate of return, your total balance could be around $262,000 of post-tax dollars for you to use in retirement.

Your rate of return will vary on market performance, and past performance doesn’t guarantee future earnings. However, it’s worth noting that the S&P 500, which is one of the broad indices that tracks the largest 500 companies in the U.S. has returned roughly 10% over the last 10 years.

Spend on the things that truly make you happy, and cut the rest

Everyone loves to talk about how important it is to save and invest, but no one ever talks about how to spend your money wisely to enjoy your hard work. Money should be spent, within reason. We all work hard so we can enjoy our lives outside of work. However, this should always be done cautiously and intentionally. This way of spending comes from the book, I Will Teach You To Be Rich, by Ramit Sethi.

For example, I really enjoy going out to eat — so I spend probably $400 per month on dining out. However, I don’t indulge myself in many other expenses. I hardly ever buy clothes. I don’t upgrade to the newest phone each year. I don’t pay cash for my vacations as many times I use my credit card rewards to fund my travels.

Additionally, I overfund my retirement accounts and invest a significant portion of my income — so I don’t feel bad at all spending $6 on a cup of coffee. And you can do this too by asking yourself a few simple questions:

  • What do you truly love spending your money on?

This should be something you're passionate about or really just enjoy that fills your life.

  • What could you cut back on that you don’t care about as much?

Do you buy coffee and end up throwing away half of it? Do you buy clothes and end up not wearing it? Do you really love technology enough to spend $1,000 on the newest iPhone?

As long as you're meeting your basic requirements in your life such as paying off any high-interest debt and meeting your monthly bills, you should spend where you love and cut back on where you don’t. By doing this, you can live a “rich” life on your terms.

Be intentional about your income

People love to talk about budgeting, cutting back and saving every single penny possible. The core issue is that you can only cut back so much on your spending. However, the upside is that you can earn an unlimited amount of money.

So once you can get the bare necessities covered, it’s incredibly important to be intentional about how much money you’re bringing in each month. If you’re in the situation where you aren’t happy with your income, consider jumping to a higher paying job or creating another stream of income.

For example, in 2014, Forbes reported that workers who stay in a job longer than two years get paid 50% less than those who regularly switch jobs. And as companies are more hesitant to award employees raises and bonuses, it’s in your best interest to regularly shop around your services. So if you’re currently earning $20 an hour, see if a similar role is available for $24 an hour in your area. And if you haven’t recently marketed your services out to other employers, it could be a golden opportunity to put your name out there.

In short, your income is your oxygen. As you increase your income, you can start accomplishing your other financial goals — and building the life you aspire to.

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