Between family and friends and today’s almost endless digital resources, young people have more information than ever before about how to manage their money. Yet, despite this wealth of information, the resulting financial advice may conflict, causing Millennials to feel confused about how they should really allocate their finances.
In recognition of Financial Literacy Month this April, it’s time to separate the money myths from the facts. Keep reading to learn about common financial misconceptions and how you can take charge of your financial journey.
- Myth: I’m in debt from my student loans; I can’t afford to save right now.
Fact: You can’t afford not to save. You’re likely to earn a much higher income with a college degree than without. So you may actually be in a much better financial position than you think. And while it can feel overwhelming to start a career already in debt, you need to view saving money as an equal priority to paying off debt, because an emergency expense could put you even further in debt.
Tip: Know your starting point. You need to know where you stand with your debt before you can take steps to improve your student loan situation. Consult your lender for available loan repayment options to understand the types of loans you have and their current payment terms. Then create a plan for paying off debt, which can make it much more manageable. To help with savings, start by automating your savings from each paycheck so you can achieve at least three to six months emergency funds.
- Myth: I’m too young for life insurance.
Fact: You’re never too young to get life insurance. In fact, the younger you are, the lower the cost it will be. It’s important to protect your financial well-being whether you’re married or single, young or old, with or without kids. Plus, while the primary purpose of life insurance is the death benefit, most people don’t realize permanent life insurance can have a cash value and living benefits that are worth considering a part of your plan.
Tip: Apply while you’re young and healthy. Not only will your premiums be lower, but it’s easier to qualify for a policy and you can acquire a larger cash value over the course of your life.
- Myth: I don’t make enough money to meet with a financial representative.
Fact: There is no minimum income requirement to meet with a financial representative, but there is much to gain when you work with an expert to create and understand your very own personalized financial plan. Your financial professional will help you understand how to make your money work for you, including how to save, spend, grow and protect your income. You only spend money when and if you decide to purchase a product or service.
Tip: Find someone who’s right for you. Find a financial representative who specializes in areas of importance to you. Your financial professional will guide you through a detailed discovery process to better understand your personal financial situation and your goals.
- Myth: I don’t need to purchase additional insurance; my employer benefits cover my needs.
Fact: If someone asked you to take a 40 or 60 percent pay cut, would you do it? While most employers do offer basic insurance as part of their benefits package, most plans only partially cover the employee, leaving a vulnerable gap in the event of a disability. Most people can’t live off only 40 or 60 percent of their income, which is what could happen if there is an accident or unfortunate circumstance that prevents you from working.
Tip: Close the gap. Make sure you know exactly what percentage of your income your employer benefits cover and then meet with an expert to understand which insurance products or services can help bring you closer to full coverage. Disability insurance and life insurance are all worth considering.
- Myth: I can’t afford to invest in my retirement if I’m not earning enough money.
Fact: You can’t afford NOT to invest in your retirement. One of the most important things is to put as much as you can toward retirement today, even if it’s only 1 percent of your income to start with. Each year, try to increase your contributions to your retirement fund by 1 percent until you are maximizing your contributions. By starting early, you can also take better advantage of compounding, which can really add up over the years.
Tip: Start early and invest as much as you can. Meet with a financial representative for guidance on which investments will work best for you. While all investments carry some level of risk, including the potential loss of principal invested, no investment strategy can guarantee a profit or protect against loss. But there are many options to choose from including stocks, bonds and mutual funds to tailor your investment strategy to your personal financial situation and future goals.
This Financial Literacy Month, commit yourself to your personal financial education. You’ll not only feel more confident and empowered to make smart money choices, but you’ll also have the tools and resources to set a solid financial plan for your future.
Emily Holbrook is the Director of the Young Personal Market for Northwestern Mutual. In this role she leads the company’s cross functional efforts to develop a strategy to help young singles, couples and families make progress toward achieving financial security.