It’s 2020, it’s time for Millennials to live the ‘Frugalpreneur’ lifestyle, keeping the largest expenses as low as possible. You hear high-profile stories about how entrepreneurs have kept their expenses as low as possible to finance their business. If millennials and Gen Z can apply the same financial mindset as these thrifty entrepreneurs, finance will be a lot easier to manage. Saving money is simple, but why are some millennials so broke? It’s always about making smart financial choices; money is a finite resource and so is your time. Know how to spend money wisely and avoid purchases that do not add value to your life.
There are many overpriced “brand activities” in a society that put pressure on millennials and impose expensive social obligations on them. Social branding activities such as weddings, cars, luxury goods, independent living, travel and many others are responsible for Millennials’ financial stress. Who would you like to impress? In fact, most of these branding tactics are just ways for companies to make money, they usually do not add value to your life. If you can afford the social brand image, do it wisely, but don’t go into debt.
The average salary of millennials ranges from $60,000 to $100,000 per year. HENRY (High Earners Not Rich, Still) Millennials make $100,000 or more. Saving and investing in your early career might not look like much, but just wait until you reach your 30s. Millennials and Gen Zs, listen to me if you want a better financial life: your priorities must change. Money cannot solve personal life problems, but financial flexibility can relieve some of life’s difficulties. Utilize your money for purchases that will add the greatest value to your life at the best price. Living an intelligent financial lifestyle doesn’t look sexy because society is driven by marketing your life into perpetual spending habits with overrated experiences, temporary homes, and worthless cars.
Living independent – Very Overrated
The simplest way to save money is to live with your parents or have a roommate! Rent is generally the highest recurring obligation: start cutting down on rent first because everything else is chump change.
Society should be impressed with Millennials living with their family or having roommates. It shows a sign of maturity and logical reasoning. Even if you make a lot of money, why bother living alone when living at home could be free or substantially less expensive? Unless there is a problem at home, living with your family should be the first obvious solution to save money.
The Millennials that cannot afford living alone are often pressure by society to rent their own place. People put themselves into so much debt to impress others that they are doing well by living alone or buying a new car, but none of these spending habits add value to Millennials’’ lives besides the illusion of their financial status.
A few years ago, Kevin, one of my colleagues at KPMG asked me how I could afford to eat out for lunch every day.
Kevin’s background: Kevin lived with roommates for two years, and then rented his own one-bedroom apartment in Arlington, VA for $2,300 a month.
Kevin: “Tom you are wasting a lot of money eating out.”
Tom: “How much are you saving from not eating out?”
Kevin: “$200 a month” and he showed a big smile.
Tom: “Wow that’s great, but I like eating out. I am sacrificing my personal space to live with roommates.”
Kevin: “Oh you’re saving a lot of money living with roommates, I can’t do that though. I want my own space.”
Tom: “Yep, I am saving a lot of money,” I flashed a big smile back to Kevin and went out to lunch.
How much was I saving from living with roommates?
$0 Dollars – I never had to pay any rent.
During college and my first two years on the job, I paid $600 a month to live with my family. I saved much of my money to purchase a house. After saving up for a deposit, I purchased a townhouse near a university campus. My mortgage was $2000/month and HOA was $100/monthly. I wasted no time in posting available rooms. I lived on my own less than a month before I had a college roommate who moved into my house. As early as the second month, all the rooms were rented. There were moments when I rented my room on Airbnb, which was the master bedroom, and I slept on the sofa. Sleeping on the sofa was a little extreme, but it helps speed up my savings.
Some people have very bad experiences living with other roommates and it is understandable. Living with a roommate isn’t convenient. It takes time to interview roommates that have good etiquette.
I am not saying that millennials have to live with their families, but whom do they want to impress? You can always live independently with your family by paying the rent and helping to care for the home. If living with family is not a viable option, then look for a good roommate.
If you want to live independently: rent an affordable basement and share a kitchen. Whatever you do, minimize your rental expenses as much as possible. Saving money on coffee, eating out, and being frugal with other smaller, discretionary spending does not comparable to saving money on rental expenses.
Traveling often – Overrated
Traveling is great, but why are Millennials traveling so often? There should be a budget set for traveling. I am freaking out for my generation that are taken out loans and paying interest to travel more often. Does traveling often add value to anyone’s life? It could, but at what cost?
Eating out – Underrated
I can’t eat simple prepared meals like sandwiches, pizza, etc. I prefer meals that have a richer taste, which simply means a longer cooking time. I have to spend a lot of time grocery shopping, preparing, and cleaning just to make one meal. To me, it’s not worth the time to cook unless I’m cooking for a household of at least three people. The economic cost and time required to prepare a meal are wasteful. It would be just as affordable, and sometimes cheaper to eat out than making the food at home.
10% minimal saving & 10% Retirement – Very Underrated
- Pay off your discretionary debt that is above 5% interest. This means all credit cards should be paid off monthly. There are zero reasons to have a carry-over monthly credit card balance.
- After you pay off your credit card, then start saving 10% each month, but don’t let your cash sit in a savings account. Put your savings into a higher paying account like buying a stock market index, do not pick stocks (over 95% of investors will underperform the index) until you are educated about investment fundamentals like reading a financial statement, and financial risks.
Everyone should always invest in their retirement to get the employer’s match. The average employer’s match is 3%, which means it would require the employee to put in 6% to get the additional 3% from their employer. If you are 1099, or an entrepreneur, you should still have at least 10% of your income invested in your retirement.
Buy a used, Affordable Car – Very Underrated
Again, you impress no one unless you have a secure financial life. Having enough money to buy a house should be top of mind. The only people who will be impressed by your beautiful cars are hidden fees that will treat you like a financial resource for their entertainment.
Expensive Wedding and Wedding Rings – Overrated
The average wedding in the United States costs more than $20K and it usually requires immediate payment. It’s crazy to hear how some people have to take out a loan to have a wedding… If you need a loan to have a wedding, forget it! Your close family and friends will still love and celebrate your union the same way!
In many Asian cultures, cash is a standard wedding gift. My wedding was expensive, but our family and friends’ generous gifts helped recover a portion of the wedding costs. Although our wedding could have been a lot cheaper, my wife and I wanted our wedding to be a memorable experience in order to give gratitude to our family and friends for supporting us through our lives. We budgeted and postponed our honeymoon so that we wouldn’t incur any financial strife.
If you have the financial means for an expensive wedding and can afford a home quickly, then go ahead. But, if a wedding or wedding ring will delay your ability to purchase a home, then do not attempt to have an expensive wedding. Buying a house should be your top priority.
Birthday Gifts and Christmas Gifts – overrated
We shouldn’t be shopping for random gifts. If you have to buy a gift for a special event, make sure it comes in handy. Most of the time, we buy bad gifts or try to make frivolous gifts that end up in the garden sale or in the donation stack. Instead, pay for an event, lunch or something that helps you maintain a good relationship with the person you are giving the gift to.
Fast Fashion and Cheap Fashion – overrated
Fast fashion clothes are usually just low quality. Buy quality items that cost a little more, and have less junk in the closet. Buy higher quality items like dress shoes suits and purses. Some items like Louis Vuitton are entry luxury items that come with lower end material that you would find in $300 items. If you can afford luxury, then buy a brand like Hermes because the resell value is better than most Louis Vuitton. I’m not a Michael Kors (MK) fan: their $300 bags are not high quality when compared to other $300 bags. There’s a reason why MK has been losing their brand equity…
Used Electronics – Underrated
I rarely ever buy any new electronics. I will always buy cheap, used electronics on eBay. If you know how to get the max capability from an electronic product there is no need to waste your money on the newest electronics. Go for cheaper used 2nd or 3rd generational products that can get the job done just as well as the newer models.