Lifetise / BrightTalk Webinar: Money management for Millennials
SLIDE 1 – INTRO
Hi everyone and welcome to my webinar, Money Management for Millennials. I’m Caroline Hughes, CEO and co-founder of Lifetise, a life planning platform that helps you figure out how to afford your life. Thanks very much for joining me today and I hope you get a lot out of this session.
SLIDE 2 – 3 KEY THINGS
When it comes to money, there is a lot of advice out there and sometimes it can be hard to figure out what applies to you. So today, we’re going to simplify things and talk about 3 key pieces of advice:
- Identify what you control when it comes to money
- Plan for major life events; and
- Invest in future you
SLIDE 3 – IDENTIFY WHAT YOU CONTROL
It may feel at times that there isn’t a lot that you control, but let’s focus on 3 things: Your spending, your earnings and your taxes.
SLIDE 4 – YOUR SPENDING
Managing your spending used to mean balancing a cheque book and running a spreadsheet. Now you have a ton of personal financial management apps that do it all for you.
The ones listed on the top (PocketGuard, Yolt and Cleo) are apps which link to your bank accounts and calculate your budget and monitor your spending.
The ones on the bottom (Starling, Monzo, Simple and Ally) are just some of the new digital banks, which track your spending, provide you with loans if you go over, and show you your “safe to spend” amount every month (i.e your fun funds).
Basically, if your bank doesn’t have an app which allows you to set budgets and track spending, it’s time to switch to one that does.
SLIDE 5 – YOUR EARNINGS
So much of your personal financial freedom is tied to how much you earn. It sets the ceiling on what mortgage you can get, how much you can save or put away for retirement. So it’s really important that you try to make sure you are paid what you’re worth.
Not sure your market rate? Check out Payscale’s calculator. Just enter your job title and location and they’ll tell you. Or speak to a recruiter in your area to find out the current rate for your role.
Nervous about asking for a raise? The best times to do it are either during your annual performance review, when your boss will be expecting it, or straight after you’ve done great work on a project. If your boss says no, ask to revisit the question in 3 or 6 months, or see if you can agree a bonus instead.
Need some coaching – try the Cindy Gallop Ask for a Raise chatbot on facebook messenger.
SLIDE 6 – TAX EFFICIENCY
Taxes – everyone’s favourite topic. The governments make it so hard to understand the system, that most of us just hide.
But that means we are missing out on tax breaks, so I’m going to encourage you to get clued up about your taxes, so you’re not paying more than you should.
In the UK, you should be looking at ISAs (Individual Savings Account). The UK government lets you save up to £20,000 a year tax-free. So this is especially helpful for any of you who are higher rate tax payers. You have the option of a cash ISA, where you money stays in cash. Or a stocks and shares ISA, where you invest your money, but it still sits within this tax-free wrapper.
Two very important ISAs to know about: a Help-to-buy ISA (which you can use to save to buy a house) and a Lifetime ISA (which you can use either to buy a house, or to save for retirement). These work in slightly different ways, but the basic rule is that the government will give you 25% on top of what you save (there are limits on how much you can save each year). So they are well worth looking at.
In the US, you need to get well-acquainted with the tax exemptions that apply to you. There are too many to mention here, but check out the IRS’s exemptions page for details.
Two important ones:
Saver’s credit, where you can claim up to $1,000 for putting money into an IRA or a 401k for retirement; and
Making sure you deduct your student loan interest that you paid. You can deduct up to $2.500 a year. There are also other tax breaks if you are in continuing education, so make sure you take advantage of all of the deductions available to you.
SLIDE 7 – PLAN FOR LIFE EVENTS
Let’s move away from depressing taxes and onto something more positive – planning for life events. Specifically, building your credit score, how to pay down debt, and how to make a plan to hit your life goals.
SLIDE 8 – BUILD YOUR CREDIT SCORE
Your credit score says whether you are financially stable and credit worthy in the eyes of financial institutions. Most people don’t check their credit score unless they need to – to take out a loan or get a mortgage – and at that point it’s too late to fix any problems. So I recommend checking it every 6 months, to avoid any nasty surprises.
In the US, you need to check all 3 companies: Experian, TransUnion and Equifax. Sorry, I don’t make the rules!
In the UK, it’s Experian or ClearScore.
Don’t have a credit score or need to build up your credit score? You get a credit score by getting credit and then being good at paying it back. It’s ironic and unfair that people who never take out a loan or a credit card, often have a very low credit score.
To build your credit score, you can get a credit card (it doesn’t have to be for a large amount) and use it to pay for some of your standard monthly expenses. Then pay it off in full every month direct from your salary.
A new alternative, if you can’t or don’t want to get a credit card, is using your monthly rent payment to build your credit score. Take a look at RentTrack in the US or CreditLadder in the UK for more information.
SLIDE 9 – PAY DOWN DEBT
Now, for a lot of you, your student loan debt will be the biggest debt you ever have, apart from if you get a mortgage. I can imagine that it must sometimes feel like you’ll never get out from under it, but have faith. You need to keep chipping away at payments, to bring the total amount (the original loan + interest) under control.
Generally, there are 2 proven ways to tackle your debt: the snowball vs the avalanche. They are similar, but with one key difference. For both methods, you list out all of your debts, then you make the minimum monthly payment on all of them, no exceptions! If you have any money leftover, then here’s where the difference comes in.
With the debt snowball: you use that leftover money to pay towards the smallest debt that you have, the idea being that this is the one that is quickest to pay off. It gives you the satisfaction of being able to clear that first debt relatively fast, which then gives you the momentum and encouragement to keep going with the next smallest, then the next. By the time you get to your last debt, you’re taking big chunks out of it each month.
With the debt avalanche: you use that leftover money to pay off the debt with the highest interest rate. And so on, until all debts are paid.
Debt avalanche makes the most sense mathematically, as you will save money on interest, which means you will have more to pay off the underlying debts. But recent studies have shown that most people find it easier to stick to the snowball method, because you see the effects more quickly. My advice is, do the maths before you choose your option! There are plenty of online calculators to help you.
SLIDE 10 – MAKE A PLAN
Most of us don’t make life plans, we just sort of meander along hoping that we’ll figure it out along the way. And whilst there’s nothing wrong with that, it can cause anxiety when we decide we do want to hit certain life goals, like buying a home or having kids, but don’t know how we’ll manage to afford it.
It is the job of financial advisers to help you map out your future and advise you on how to manage your money to get there. If you are earning a decent amount of money and want advice on what you should be doing with it to make sure you can do all the things you want to do, whilst saving for retirement and investing, then it can be a good investment to speak to a financial adviser to get advice on your options.
With my team at Lifetise, we’re building a life planning platform that helps you calculate the costs of all the things you want to do in your life and make a plan for how to afford them. So far, we’re only in the UK (sorry to my US audience, but I promise we will come across the pond soon!). Our Homefinder tool show you how much you can afford to spend on a home in the UK, how long you need to save for, and where you can afford to live. Plus we walk you through all the tasks on how to actually buy your home, as it’s quite a complicated process!
Our Childminder tool helps working families figure out the optimal mix of working days and childcare costs (which in the UK are pretty insane). We’ve had a lot of people move closer to the grandparents when they’ve used this, for free childcare!
Please check it out and let me have your feedback.
SLIDE 11 – INVEST IN FUTURE YOU
Now I get that some of you might be thinking: there’s already so much I need to do now, I can’t even begin to think about future me. But I promise you that future you will LOVE now you and will feel really smug if you start some of these things.
SLIDE 12 – PENSIONS
I’m not going to talk about the specific types of pensions here. Too dull even for me. Instead, I’m going to stress why it’s really important to start paying into a pension (or investing, or saving generally) as early in life as possible. And that is the magic of compound interest.
The way that compound interest works is that you start in year 1 and you pay in £1,000 and you get 5% annual interest on that amount. At the end of year 1, you will have £1,000 plus that 5%, so £1,050 in total.
Now, you don’t withdraw that £5 interest, so in year 2, you start with £1,050 and that earns you 5%, so you’ll have £1,102.50 at the end of year 2. At the end of year 3, it’s £1,157.60. At the end of year 20, it’s £2,652.30. At the end of year 40, it’s £7,039.99.
The graph on the slide shows you the difference starting early makes, over the course of the average working lifetime.
The other point I want to make on pensions is that, if you can afford to, make sure that you pay into your pension to the threshold that your employer will match. For example, if you have a pension scheme or a 401k where your employer says that if you put in 3%, they will match it, then make sure you pay in that 3%, so you get that free money!!
SLIDE 13 – SAVINGS
One of the questions I get asked the most is, how much should I be putting away into savings. I generally follow the 50/30/20 rule
- 50% of your take home pay goes on needs (that means things like a roof over your head, food – probably not Netflix)
- 30% goes on wants (Netflix, going out, non-essential clothes)
- 20% goes into your savings (including investments/pension/401k etc)
The easiest way that I have found to save is to take it straight out of my paycheck every month, as soon as it lands in my bank account. That way I don’t even miss it and I know that what’s left is either for my bills (the 50%) or my discretionary spends.
If you find it hard to work out how much you can afford to save, there are a few apps that can help you. Both Plum and Chip use AI to calculate how much you can put aside each month.
Please make sure you shop around for good savings rates, as they vary wildly (usually you will get a higher rate if you agree to leave the money in longer). Recently, some banks have started offering higher rates on instant access savings accounts (where you can take your money out at any time) – even Goldman Sachs has got in on the act, with its new Marcus account.
SLIDE 14 – LIFELONG LEARNING
Education is one of the best investments you can make and is often the biggest differentiator in terms of your ability to build financial stability and wealth. But as we said earlier, student debt can be out of control. So my advice is to use one of the MOOCs (massive open online courses – no idea why that strange name!) to upskill.
EdX and Coursera offer free or massively discounted online versions of their college courses from top colleges (including from Harvard and Columbia – you can take Harvard’s foundation computer programming course CS50 for free via EdX). They are now starting to offer mini MBAs for a fraction of the cost of an on-campus version.
Udemy tends to have more vocational courses and the quality varies, but it can be great for learning things like programming and digital marketing.
Many of the courses provide certificates on completion, so you can add them to your resume.
SLIDE 15 – INVESTING
I’m going to finish up by talking a little about investing. Now I didn’t start investing until I was 39. That’s right – I left my money mouldering in cash in crappy bank accounts earning pitiful interest, instead of putting it to work. So rule number one is don’t be like me!
Here are the rules that I follow:
- Start as early as you can afford to (for the same reasons as the compounding slide)
- Don’t throw all your money in at once in an attempt to time the market, you should be drip-feeding in small, monthly amounts to your investment accounts.
- I go for passive investments over active (the difference is whether you have a fund manager trying to outperform the market, or just a fund that tracks the market. If you get a great active fund manager, then you could make much more money, the problem is, historically there haven’t been that many active fund managers who have beaten the market!).
- You should look for low fees. Again, passive funds tend to be lower fees than active ones. And the investment platforms (Nutmeg, Moneyfarm, Wealthsimple etc) are usually significantly cheaper than the investment firms.
- Leave your investments in as long as possible – again, for compounding purposes and also because the longer you leave it, the more chance you have to ride out any fluctuations in the stock market.
Thank you very much for following along. I know it was a lot to take in, so these slides are available in PDF on our website at the URL shown here. I’ve also put a transcript with it. If you have any questions, please feel free to email me at firstname.lastname@example.org and please follow us on social media @lifetise.
Have a great rest of your day!