At this point, many millennials are finishing college, embarking on careers, and thinking about starting families. While you may have already accomplished some of these major life goals, what you might not yet have on your radar is a financial plan.

If the sum total of your finance efforts consists of trying to pay your bills each month, you’re not seeing the forest for the trees. The best time to get your finances in order and start saving for the future is now when you have fewer expenses and can take full advantage of the compound interests tied to many retirement accounts.

 millenials looking at retirement account for the future

1. Create a budget

If you’ve taken any kind of basic finance or accounting course, you should have some idea of how to go about creating and managing at least a basic budget. For those who have no background in finance, there is no shortage of templates, tutorials, and apps to get you on track. Tracking finances is an essential part of planning for a sound financial future, so use the tools at your disposal. If you don’t know how your earnings and spending habits balance out, improving your financial situation will remain a vague idea, at best.

2. Pay down debt

If you were lucky enough to have a college savings fund from your parents, you may have completed your higher education without student loans. This isn’t the case for many students, however. Even with a college fund taking out loans at some point is a part of higher education for many, as some don’t receive help from their parents.

Whether you’re paying off student loans, credit card debt, or other financial obligations, your top priority should be reducing your overall debt. This isn’t to say you should neglect savings or contributions to retirement funds, but instead of blowing money on clothing and fancy cars, try to live frugally and pay down your debt at a younger age. This way, you can better your credit score and work toward major purchases like a home or business. 

3. Build credit

The basic tenet of building credit is showing a consistent ability to borrow and pay responsibly. In other words, you need to take on debt strategically, paying off the principal and interest at a consistent pace to demonstrate that you are a good risk for lenders to trust and let you borrow for big purchases you may need.  

Many millennials seem to be of the opinion that taking on debt is a bad thing. It’s helpful to understand the difference between good debt and bad debt–home ownership is good, insane credit card debt is bad–as well as what constitutes a reasonable amount of debt based on your income and expenses.

Credit is a necessary evil if you want to make any major purchase in life, from buying a home to starting a business. Even taking on a lease or buying a car requires a credit check. Can you get by without a strong credit history? Try it, you’ll see.


time is money hourglass

4. Start saving for retirement 

Now is a good time to become familiar with the concept of compound interest. It basically means you’re earning interest not only on the principle you contribute to an account but also on the interest that accumulates. 

Say you put $100 in an account earning 10% interest annually. After a year, you have $110 with interest earned. The next year, however, you earn interest on all the money in the account, including the interest previously earned, so you now have $121. This is vastly simplified, but you get the idea – you can earn a lot more quickly with this type of interest.

When money sits long enough, your earnings become exponential, so starting early is the key to getting the most out of your retirement plans. In addition, many retirement accounts are pre-tax income or tax-deferred, and some employers offer a percentage of matching funds for 401K accounts, which you should always take full advantage of.

5. Rollover retirement funds

These days workers don’t expect to stay with a single employer over the course of their entire careers. You could end up switching jobs frequently as your career progresses. What are you going to do with your 401K when you leave a job?

Many millennials cash them out, but this is a huge mistake. Instead, find a good financial planner that can help you roll over old retirement accounts–into new ones. This allows you to continue earning for your retirement while avoiding the major penalties associated with early withdrawal.

The money that is already put into a retirement fund has the name retirement for a reason - leave it for when you need it. 

6. Invest

Only a handful of millennials become billionaires, but this doesn’t mean you can’t do pretty well for yourself. Investments are just one key to financial planning many millennials ignore. Find ways to earn while operating at a risk level you’re comfortable with, and make the most of the investment opportunities now–without risking your bank balance in the process.