As millennials and Gen Z enter the workforce, it’s important to adopt a frugal mindset in order to manage finances effectively to live the ‘Frugalpreneur’ lifestyle, keeping the largest expenses as low as possible. Many successful entrepreneurs have kept their expenses low in order to finance their businesses, and by adopting this mindset you can achieve financial success. It is important to make smart financial choices and avoid purchases that don’t 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
Living independently can be a very overrated concept, and there are several reasons for this. One of the most straightforward ways to save money is to live with your parents or have a roommate. Rent is typically one of the highest recurring expenses, so cutting down on it can make a significant impact on your budget.
Society may often put pressure on millennials to live independently, but living with your family or having roommates can actually be a sign of maturity and good financial decision-making. Even if you are making a good income, it may still be more cost-effective to live at home or with a roommate rather than paying for an expensive apartment on your own. Unless there are specific issues at home, living with your family can be a smart financial decision that can help you save money.
Many millennials feel pressure to live independently and may go into debt in order to impress others with their financial status. However, these types of expenses, such as renting an apartment or buying a new car, do not necessarily add value to one’s life beyond the illusion of financial success.
A colleague of mine, Kevin, once asked me how I could afford to eat out for lunch every day. Kevin had lived with roommates for two years before renting a one-bedroom apartment in Arlington, VA for $2,300 per month. It’s worth considering whether the expense of living independently is worth it, and whether it’s possible to make more financially sound decisions that can benefit your long-term financial health.
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 in order to eventually buy a house. After saving up for a deposit, I was able to purchase a townhouse near a university campus. My mortgage was $2000 a month and my homeowners association (HOA) fees were $100 per month. I wasted no time in posting available rooms for rent. I lived on my own for less than a month before I had a college roommate who moved into my house. Within the second month, all the rooms were rented. There were times when I rented out my own bedroom on Airbnb and slept on the sofa. This may seem extreme, but it helped me save money more quickly.
While some people have had bad experiences living with roommates, it is understandable that it may not always be convenient. It takes time to interview potential roommates and ensure they have good etiquette.
I am not saying that millennials have to live with their families, but who do they want to impress? You can always live independently with your family by paying 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, consider renting an affordable basement and sharing a kitchen. Whatever you do, try to minimize your rental expenses as much as possible. Saving money on things like coffee, eating out, and being frugal with other smaller discretionary expenses does not compare 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 worried about my generation that is taking 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 means they take longer to cook. 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 to make the food at home.
10% minimal saving & 10% Retirement – Very Underrated
It is important to pay off your discretionary debt that has an interest rate above 5%. This includes paying off your credit card balances in full each month. There is no reason to carry a balance from month to month.
Once you have paid off your credit card debt, it is a good idea to start saving 10% of your income each month. However, it is not advisable to simply leave your savings in a regular savings account. Instead, consider investing your savings in a higher-yielding account, such as a stock market index fund. Avoid picking individual stocks unless you are well-educated in investment fundamentals, such as reading financial statements and understanding financial risks.
It is always a good idea to invest in your retirement, even if you are self-employed or work as a freelancer. The average employer match is 3%, so you would need to contribute 6% of your income to receive the additional 3% from your employer. If you are self-employed, it is recommended to invest at least 10% of your income in your retirement.
Buy a used, Affordable Car – Very Underrated
It’s understandable that you want to impress others, but the reality is that financial stability is more important than the material possessions you own. Buying a used, affordable car is often underrated and a wiser financial decision than purchasing a new, expensive one. The only people who will be impressed by the beautiful cars are hidden fees that will treat you like a financial resource for their entertainment.
Expensive Wedding and Wedding Rings – Overrated
Weddings and wedding rings can also be overrated, as the average cost of a wedding in the United States is over $20,000. It’s not worth taking out a loan or delaying important financial goals, such as purchasing a home, just to have an extravagant wedding.
In many Asian cultures, cash gifts are a common part of wedding celebrations and can help offset some of the costs. While it’s understandable to want to have a memorable wedding experience and express gratitude to family and friends, it’s important to consider your financial situation and budget accordingly.
If you have the means to have an expensive wedding without impacting your ability to achieve financial goals, then go ahead. However, if it means delaying your ability to buy a home or causing financial strain, it’s important to prioritize those financial goals over a lavish wedding.
Birthday Gifts and Christmas Gifts – overrated
We should not be shopping for random gifts. If you need to buy a gift for a special occasion, make sure it is useful. Often, we purchase poor gifts or try to give frivolous gifts that end up being sold at a garage sale or donated. Instead, consider paying for an event, a meal, or something that will help maintain a good relationship with the person you are giving the gift to.
Fast Fashion and Cheap Fashion – overrated
It’s important to focus on quality when shopping for clothes and accessories. Fast fashion items are often of low quality, and it’s better to invest in higher quality items that may cost a bit more. This way, you’ll have fewer low-quality items cluttering up your closet.
For example, consider investing in dress shoes, suits, and purses that are made with quality materials. While some brands, like Louis Vuitton, offer entry-level luxury items that may not be as well-made as others in the same price range, it’s worth considering investing in a brand like Hermes, whose items often have a higher resale value.
It’s important to also be mindful of the quality of items within a certain price range. For example, Michael Kors bags that cost $300 may not be as high quality as other options in the same price range, which could be a contributing factor to the brand’s declining brand equity. Investing in quality items is a smart choice that will pay off in the long run.
Used Electronics – Underrated
As a savvy shopper, I prefer to purchase used electronics rather than shelling out for brand new ones. Not only do I save money by buying second hand, but I also have the opportunity to find high-quality products at a fraction of their original cost.
When shopping for electronics, it’s important to consider the capabilities of the product rather than simply going for the latest and greatest model. Many older electronics, especially those that are just a generation or two behind, are still more than capable of performing at a high level and meeting your needs.
Plus, buying used electronics is an environmentally friendly choice. It helps to reduce waste and keep these products out of landfills, while also supporting the circular economy.
So next time you’re in the market for electronics, consider opting for a gently used option. You’ll save money and feel good about your purchase, all while getting the performance you need.