Creating a Financially Fit Generation

Indiana MoneyWise aims to help Millennials develop the skills needed to be financially fit and informed investors. Millennials (born 1981 to 1996) are now the largest living generation, even bigger than Baby Boomers. When looking at financial statistics related to Millennials, the generation is 25% more likely to report losing money to fraud than older generations, 63%  carry some kind of debt, 73% are saving for the future, 51% say they feel financially behind, and 73% say they are not optimistic about their financial future. We want to improve these statistics and put you on a path to success and financial freedom.

Making a Plan for Your Money

How you handle money over the next few years is key in reaching your future financial goals. The following personal finance habits will help you achieve those financial goals.

Track Your Spending
You can’t know what you have unless you know your spending habits. Those who track their spending often have less debt. Try writing down everything you spend money on each day for a week or month: from filling your car with gas to placing impulse Amazon orders.  You need to SEE where your money goes. Use our Spending Log worksheet to get started. You may also want to consider using one of the many apps out there that track spending.

Create a Budget
Budgets get a bad rap, but they aren’t designed to deprive you of the things you want in life. Quite the opposite! Think of a budget as a tool to help you get the things you want. Budgets help you figure out how much money you need to cover your expenses, and it’s your responsibility to make sure you don’t spend more than that amount. If there are purchases you would like to make in the future, a budget will put you on the right path to make sure you have the required funds. Use our Budgeting worksheet to get started.

Build an Emergency Fund
An emergency fund helps you handle financial surprises without going into debt or resorting to high-interest loans. Research shows that households with emergency savings below $500 are more prone to worry, anxiety, and loss of sleep. Even setting aside small amounts will help you in building this fund over time. Aim to have three-to-six months’ worth of living expenses in a separate savings account that can be accessed quickly when an emergency pops up. After using an emergency fund, work toward refilling it.

Automate Your Savings
Saving isn’t always easy. Making automatic payments can ease the stress. Consider having a portion of your pay directed to a separate savings account. By having the money automatically transferred, you won’t miss it or accidentally spend it. Learn more by checking out the Saving Money section of our website.
 

Loan Repayment

Many Millennials are burdened with student debt. Now is the time to examine any student loans you have and develop a plan to pay them off.

Creating a Repayment Plan
First, review the terms, conditions, and the various repayment options. These will vary depending on whether your loans are private or federal.

Figure out the total amount you owe, the type of interest rate (in some cases, you can choose between a floating or a fixed interest rate), your monthly payment amount, and how long it will take to pay off the balance. If you have more than one loan, or a line of credit, you may have multiple monthly due dates.

Making student loan payments on time boosts your credit score. Federal student loans and student line of credit payments form part of your credit history. Consistently making payments on time shows lenders you are reliable at paying off debt. Missed or late payments may indicate to lenders that you are a risky borrower. These small actions might make a difference later when you apply for a loan or apply to rent an apartment. Visit the Credit Reports and Scores section of our website for more tips on how to improve your credit. 

Tips for Repaying your Loans

• Build loan payments into your budget and make at least the minimum payment. You can even set up automatic payments through your financial institution.
• Increase the size of your monthly payments. The amount you pay over and above your monthly minimum payment will go directly toward the principal, reducing your total loan amount.
• Consider making lump-sum payments. This is one of the fastest ways to pay off debt and will result in paying less interest overall.
• Remember: Don’t let perfection be the enemy of good. There will be times when you will be unable to meet your budget. Budgeting is a life-long pursuit. Each month is a new opportunity to recommit to these habits. Make sure you reward yourself occasionally.

Investing for Beginners

Many Millennials entered the workforce during the Great Recession, and as a result have started their careers at lower salaries or not in their preferred field of work. Compound this with the fact that Millennials carry more debt in the form of student loans than any prior generation, and it’s easy to see why some might be nervous about putting their hard-earned savings into an investment that carries any degree of risk. However, not investing while time is on your side could make for a difficult road to retirement. To start, we encourage you to visit the Types of Investments section of our website, to learn more about some of the common securities products available to investors.

Overcoming Fears
There are many concerns which keep Millennials from earning money through compound interest. Below are the top three reasons some Millennials don't invest and strategies to overcome these fears.

“I don’t have enough money to start investing.”
Chinese philosopher Lao Tsu said, "The journey of a thousand miles begins with a single step." If you can put aside $5 or even $10 a week, then you have enough money to start investing for your future goals. You are not required to have a large deposit to get involved with a brokerage firm or trading platform. Firms often offer investment options with low or no commissions or management fees. Many also offer investing apps for your smartphone.

The best strategy is to automate your investing. If you’re paid bi-weekly and have $5-$10 deducted from your paycheck before it hits your bank account, you’ll have $130-$260 to invest over the course of the year, and you won’t miss it because you won’t see it. If your employer offers a 401(k) or Registered Retirement Savings Plan (RRSP) or pension, invest in it, even if it’s a small amount. You won’t miss 1% of your paycheck if you never "see" it.

Remember, no matter how much you are able to save, you need to investigate before you invest by performing a Registration Search and looking at company filings on the SEC EDGAR website. You can also contact the Indiana Securities Division by calling (317) 232-6681 or visiting the Indiana Securities Portal.

“I don’t know enough about investing to begin.”
Warren Buffett said, “You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.” If you need help building a portfolio, you can enlist the assistance of a robo-advisor or consult a financial professional after checking that they’re registered. Many financial planners, investment advisers, and brokers are willing to work with clients who are just starting out on their investing journey and have not yet accumulated many investable assets. In a way, time is on the financial professional’s side by working with younger clients whose investments will enjoy the benefit of compounding value over time.

The best strategy is to grow your investor education muscle. You can contact us for additional education materials, search online, or read a book for more investor information. Also, research low-cost financial professionals in your area or those who are remotely willing to help you reach your investment goals.

Remember, no matter how much you are able to save, you need to investigate before you invest by performing a Registration Search and looking at company filings on the SEC EDGAR website. You can also contact the Indiana Securities Division by calling (317) 232-6681 or visiting the Indiana Securities Portal. 

“I’m afraid of losing all my money.”
Investment advocate Aya Laraya said, “When you invest, you are buying a day that you don’t have to work.” While there is always a risk of losing money when investing, leaving your money in a savings account is almost a guarantee that you will lose some of the value of your money to inflation. As Robert Allen once said, “How many millionaires do you know who have become wealthy by investing in savings accounts?” The answer to that rhetorical question, is none. The best strategy is to get some perspective by looking at the data on market performance over the long term (10, 20, and 30 years). Understand that while there are fluctuations, in general, the market has trended up over the long term. Consider the timeframe for your investment goals – when do you hope to retire, or semi-retire and pursue your own hobbies or interests full time?

Right now, time is on your side. But with each day that passes, it’s a little less on your side. It's best to get started and make a few mistakes, rather than do nothing at all. Your future self will thank you for taking steps today to be in a better financial position later.
 

Investing with Your Partner

Planning now for you and your partner’s financial future is important. Investing can be a great way to build wealth if both of you understand the basics, make informed decisions, and do the research.

With so many different products, knowing where and when to invest can be overwhelming. Keep in mind not every investment may be right for your family, and investing in products that are suitable, or appropriate, for your needs should be the top priority. When determining how you should invest, consider asking each other the following:

• Why are you investing? Your reason for investing will influence the type of products you invest in. For example, as a couple you may be planning for retirement, saving for your child’s college, or for a down payment on a house. The most suitable investment product will differ based on each scenario.
• How long do you want your money to be invested? Are your goals short-term or long-term? Some investment products like certificates of deposit (CDs) are designed for short-term investing whereas others like annuities are designed for long-term investing. Help your money work for you by making sure the product is suitable to your timeframe.
• What is your risk tolerance level? Your risk tolerance level is essentially how comfortable you are with big gains and losses versus smaller gains and losses. You and your partner may not share the same risk tolerance level so be prepared to openly discuss and compromise investing styles.

You and your partner’s investing goals, investing timeline, and risk tolerance levels may change over time. Re-evaluate these questions on a regular basis and adjust your investment strategy accordingly.

Modern Investing Technology

Modern problems call for modern solutions, and Millennials are driving change when it comes to financial technology. Listed here are some fin-tech topics that are of particular interest to Millennial investors.

Smartphone Investing Apps
Smartphones offer easy and instant access to apps that can help you navigate the complex world of investing. However, the variety of financial apps offered to investors can be daunting, especially if you are new to investing. Below we’ve explained some of the options available when investing with smartphone apps and highlighted some things to consider before committing to app-based investing.

What kinds of apps are available?

• Buying and selling investments: Trade stocks, bonds, and other investment products.
• Turning daily spending into investing: “Round up” your daily purchases and take the “spare change” to automatically buy investments for a predetermined portfolio.
• Investing through automatic allocation: Direct a certain percentage of your income to an investment or retirement account.
• Assigning a portion of spending to investing: Monitor your spending and saving habits and assign a percentage of your overall spending to an investment account.

How can investing apps be helpful?
Investing is a life long pursuit that can help you meet your financial goals. If you’re just getting started, an app may help you take more control of your finances or better understand the investing world. For example, if you have trouble making yourself save money to invest, you may favor an app that does it for you. However, once you build a small investment portfolio, you should reevaluate your use of the app and whether there are better options available.  

How can investing apps be problematic?
Smartphone apps give instant access to trading and portfolio management services, with market access at your fingertips. If you are new to investing, jumping right into trading stocks, bonds, and other complex financial products may not be in your best interest. For example, if you are an emotional person who is swayed by market fluctuations, you may end up buying investments at high prices and selling at low prices. Even if you are paying low, or no, trading fees, frequent buying and selling can cost you in the long run. You may also end up with a portfolio that isn’t balanced or diversified.

More Concerns

• Investing on autopilot: Putting your investment portfolio on cruise control may be attractive to people who think investing is difficult and complex. However, if you don’t pay attention to your investments or the services you are using, you may not be happy in the long run. Also, if you use several different apps, you risk over-complicating your finances.
• Cyber and data security: Read the terms of service and understand how the company will protect your financial data. With any online application, there’s a risk of being hacked. Check consumer reviews and internet searches for information about any data breaches the app may have experienced.
• Customer service and access: If you have an issue with your account or the app, you’ll want to be sure that you have access to someone (a live human!) who can help you fix the problem. Be sure you are comfortable with the level of service the app provides and read customer reviews.
• Fees and charges: People are attracted to these types of services because they offer low-fee alternatives to traditional financial service firms. Being fee conscious is good, but a lower fee structure could mean less service and information. Read the fine print to determine what the total fees and charges are for an account. Over time, fees add up and impact your overall returns.
• Investment offerings: If the app is allocating money to investments for you, understand the investment products and track record of the investment management firm overseeing the products. You want to be comfortable with the types of investments an app is putting you into, the risk you are taking, and the fees being charged.

What can I do to avoid possible pitfalls of using financial services apps?
Be cautious and do your research. Don’t use a smartphone app just because a friend suggests it to you. If you are new to investing, you may find yourself using an app that isn’t suitable to your needs or is fraudulent.

Stay engaged. Technology can make your investing life easier, but you should monitor and check in on your portfolio regularly. Being an informed, engaged investor will help you build the skills and knowledge you need to meet your long-term financial goals.

Robo-Advisors
Some individuals turn to a financial services professional for help with investing. In addition to live financial services professionals, investors are increasingly turning to robo-advisors to help them manage their portfolios. Contributing to their popularity, smartphone apps and online portals make setting up an account with a robo-advisor convenient and quick. The term “robo-advisor” refers to electronic platforms that provide automated investment advisory services to customers pursuant to computer algorithms developed by the platform sponsors. Robo-advisors thus in effect replace the roles of financial services professionals with computer algorithms. In so doing, robo-advisors may be able to offer useful services at a comparatively low cost.

Things to Consider when Investing with a Robo-Advisor

• Does the robo-advisor build a portfolio based on your financial goals while considering your appetite for risk? When you invest, you should always keep track of your investments and ensure your portfolio meets your long- and short-term needs.
• Are you comfortable and familiar with the types of investment products the robo-advisor will use to build your portfolio? Research and understand the investment products the robo-advisor uses before you invest.
• Do you like discussing ideas or asking questions when seeking financial advice? If so, be sure you understand the level of human interaction you will get with the robo-advisor.
• Do you want the ability to make decisions based on market fluctuations? With robo-advisors, you may not have the ability to buy and sell securities in your account as the market moves up or down.
• Are you considering any tax consequences that you may encounter for investment losses or gains? When investing, you should consider your yearly tax situation. You may want to talk to a tax consultant to better understand how using a robo-advisor may affect you.
• Are you comfortable and familiar with the robo-advisor’s fee structure and compensation model? You should know how much you are paying for the robo-advisor’s services and how these costs will affect your returns over time.

Robo-advisors are relatively new to the investing landscape. As with any new service, you should thoroughly investigate to make sure they are right for your investment needs. Before making any financial decisions, ask questions and do your homework.

Buying Cryptocurrency
Should you or shouldn’t you buy the latest new cryptocurrency or token? This is a popular question amongst investors of all ages. Millennials are influencing their parents and peers to buy into the crypto craze, but there is one thing many people want to know, is it safe? Here are some things to consider when deciding if a cryptocurrency-related asset is right for you.

Regulation Concerns
Perhaps the most important thing to know is the cryptocurrency-related markets are very different than regulated securities markets. For example, securities laws provide important protections that you may not be getting when dealing in cryptocurrency-related products. In many cases you may not know exactly who you are dealing with, where your money is going or what you are getting in return. You should understand that if you lose money there is a real chance the SEC and other regulators won’t be able to help you recover your investment, even in cases of fraud.

Celebrity Endorsements
These digital assets have been trending and receiving the attention of celebrities, often through endorsements. You may encounter them on social media, radio, or TV promoting Bitcoin and a variety of other products and services. Never make a decision based solely on celebrity endorsements.

Commodity for Fraud
Trendy investments are especially ripe for fraudsters, so be aware there is a real risk of fraud. Scam artists prey upon the newness of an investment opportunity when there isn’t as much history regarding the product. It’s also easier to sell an investor on an “everyone is buying it” sales pitch when there’s a lot of buzz about a certain investment product. Don’t fall for high-pressure sales tactics, the promise of guaranteed returns or too good to be true claims.

You can learn more about investing in cryptocurrency by visiting the Types of Investments section of our website.