It’s 2020, it’s time for Millennials to live the ‘Frugalpreneur’ lifestyle, keeping the largest expenses as low as possible. You hear notorious stories about how entrepreneurs kept their expenses low as possible to fund their business. If Millennials and Generation Z can apply the same financial mindset as these frugal entrepreneurs, then finances will be considerably easier to manage. It is easy to save money, but why are some Millennials so broke? It’s about consistently making savvy financial choices; money is a limited resource just like your time. Learn to spend money wisely and avoid purchases that don’t add value to your life.
There are many overpriced ‘brand name activities’ in society that pressure Millennials to become burdened with expensive social obligations. Social branding activities like weddings, wedding rings, cars, luxury items, living independently, traveling, and many others are causing Millennials financial stress. Whom are you trying to impress? In reality, most of these social branding tactics are just ways for corporations to make money, they generally don’t add value to your life. If you can afford social branding, then do it wisely, just don’t socially brand yourself into debt.
The average professional Millennial makes about a $60k to $100K salary per year. HENRY (High Earners Not Rich Yet) Millennials make $100K and above. Saving and investing early on might not look like much. But just wait until you reach your 30s. Young Millennials AND Generation Z individuals, listen to me if you want a better life: your priorities will have to change. Money cannot solve personal life issues, but financial flexibility can relieve some of life’s hardship. Use your money on purchases that will add the most value to your life at the best price. Living a smart financial lifestyle does not sound sexy because society is dictated by marketing your life into perpetual spending habits with overrated experiences, temporary homes, and worthless cars.
Living independent – Very Overrated
The easiest way to save money is to live with your parents or to have roommates! 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 didn’t have to pay for rent at all.
During college and my first two years of my career, I paid $600/month living with my family. I saved a majority of my money to buy a home. After I saved for a down payment, I bought a townhouse near a college campus. My mortgage was $2000/month and HOA was $100/monthly. I did not waste any time posting up the available rooms. I lived alone for less than a month before I had a student roommate that moved into my home. By the 2nd month, all of the rooms were rented out. There were times I rented out my room on Airbnb, which was the master bedroom, and I slept on the couch. Sleeping on the couch was a bit extreme, but it helps accelerated 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’m not saying Millennials have to live with their family, but who are they trying to impress? You can still be independent living with family by paying rent and helping to care of the house. If living with family isn’t a viable option, then find 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 are not impressing anyone until you have a secure financial life. Having enough money to put down on a home should be your first priority. The only people that will be impressed by your nice cars are hidden fees that will view you as a financial resource for their amusement.
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 do not have to buy random gifts for an adult or kid. If you have to buy a gift for a special event, make sure it’s practical. Most of the time, we buy the wrong gifts or attempt to gift frivolous items that end up in the yard sale or donation pile. Instead, pay for an activity, lunch, or something that allows you to maintain a good relationship with the person you’re 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 am not a fan of Michael Kors (MK): their $300 bags aren’t high quality vs other $300 bags out there… there’s a reason why MK has been losing their brand equity for a long time…
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.