Why are millennials the most educated and underpaid group of people? Is it because the workforce doubled when women entered it? Is it because wages stayed roughly the same for 40 years compared to inflation and supply overwhelmed demand? Is it the rise in student loan debt? Is it because our superiors’ families are able to live on one income and have been since the beginning of their careers? Is it because the world consistently asks more of us than it can offer in return?
These were the questions running through my head as I read Erin Lowry’s “Broke Millennial: Stop Scraping By and Get Your Financial Life Together.” Rife with hashtags and helpful action lists, “Broke Millennial” is the most in-depth finance book I’ve read so far. Lowry emphasizes getting out of debt and building your credit while lifting the anxious veil from money that has plagued so many young people. She covers how to overcome psychological blocks when it comes to money, the basics of budgeting, picking the right place to put your money, credit reports and scores, how to ditch debt and student loans, finances and friends, getting financially naked with your partner, living at home after college, negotiating salary, decoding investing, retirement basics, financial planners and buying a house.
Her lessons on credit and budgeting were the most helpful to me. She says, “Think of a strong credit score as an insurance policy for your financial life. A strong credit score proves to a lender that you’re reliable, which directly correlates to favorable loan terms.”
Lowry emphasizes credit throughout the book, but her chapter on credit cards specifically pushes for millennials to not carry a balance on their credit cards month to month, “‘It’s been a rough month. Can’t I just charge this to my card even if I can’t afford it?’ The short answer to this question is no, you can’t. Okay, that’s not entirely true because, yes, you are capable of charging unexpected expenses to your card, but you probably shouldn’t. Credit cards can be, and often are, a fallback for unexpected expenses except that this option comes with a hefty price tag. Having an emergency fund even when you’re in debt is incredibly important for this reason.” This is why I put off getting a credit card for so long—credit freaks me out! But her breakdown helped me understand how vital it is to only use a credit card for what you can afford.
Saving, or “paying yourself first,” is also something Lowry thinks is extremely important: “Saving money prevents you from sinking deeper into debt by providing a buffer when you hit a streak of bad luck and everything you own suddenly breaks. The other option is to finance your emergencies on a credit card and begin or continue the downward spiral of high interest and a principal balance that refuses to decrease.”
Lowry suggests this behavioral finance hack: “Put your savings in an account you don’t see when you log into your main checking account. This probably means using a different bank entirely. The out of sight, out of mind principle will apply when you feel a bit strapped for cash. This way your savings isn’t sitting right in front of you saying ‘Hey, you can skim some off the top here!’ and it’s easier to let it continue to accumulate.” I’m already planning on opening a high-yield savings account with a different bank than my current one, so I’ll soon have this covered!
A few different budgeting methods are discussed, but the one that stood out to me was percentage budgeting: “One of the more effective and less stringent budgeting methods—the percentage budget—often outlines three main categories for your cash: fixed costs (50 percent), financial goals (20 percent), and wants or flexible spending (30 percent).” Lowry also notes that the financial goals (or savings) percentage doesn’t include retirement savings since the percentage budget should be performed using your aftertax income and retirement contributions will come from pretax income. I like the idea of this budgeting process, so I’ll be trying it out and I’ll report back on how it goes.
The chapter on student loans was quite detailed, and I’ll be returning to it when I cover student loans in the future. Life looks different for millennials and the generations to come than it did for our parents and elders, and “Broke Millennial” does a great job of educating and demystifying money without overwhelming me with existential dread!
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