Financial Tips for Millennials
Jeremy Palensky shares his advice on how millennials can start saving money right now, how to budget living expenses and the many resources available for young professionals on how to manage their finances to help assure a a more secure financial future.
Featured Speaker:
Jeremy Palensky, Investment Advisor for First National Bank
Jeremy Palensky serves as an Advisor in First National Investments & Planning Client Advisory Group and provides guidance to clients as well as assistance to fellow financial advisors. Transcription:
Financial Tips for Millennials
Melanie Cole (Host): We all know it’s hard to feel optimistic if you’re living paycheck to paycheck and your finances are not quite where you’d like them to be. My guest today is Jeremy Palensky. He’s an investment advisor from First National Bank. Jeremy, we’re so glad to have you with us to tell us about financial wellness for millennials. Let’s start with what do you consider financial wellness? What does it mean to be financially well off?
Jeremy Palensky (Guest): Yeah well you have a lot of different aspects that can play into your financial wellness, whether that’s retirement, which is a long term goal for a lot of people, or maybe it’s short term goals like buying a house or saving for education. So financial wellness to me is understanding what your goals are, whether long or short and figuring out what is the best way that you can actually plan for that to make those goals happen realistically as well. That’s kind of what we want to cover today is really looking at those types of goals, what is the best way to position myself to have a better financial future.
Host: It certainly is a what do you see are the biggest fears that millennials have?
Jeremy: There’s a lot of I think fears that we have. Being a millennial myself, I guess kind of on the higher end of being a millennial, a couple of fears that I have are for the future in the sense of – if we look at our parent’s generation, we see that they have pensions, they didn’t have as high of health care costs, they’re dealing with that now, but they didn’t have that when they started retirement. They might have social security, which is something we might not be able to utilize when we’re older, and so there’s some fears that I think about when my generation starts getting into retirement, and I think one of those problems, a problem that may arise, is that we’re not planning for those types of things, we’re not thinking about those things because the information is not getting out there, which I guess this is awesome that we’re providing this resource to people to try to educate them on having a better financial future and trying to build for that future.
Host: Then let’s get right into some tips to stop living paycheck to paycheck and what are some common mistakes that millennials make with their money?
Jeremy: Yeah, I think we under utilize the power of budgeting. I think people know what budgeting is, but they don’t actually fully get into budgeting as to making it effective for them. Budgeting can be great for not only knowing what income is coming into you, but what’s going out, and then you can kind of see how much is going to things that you don’t necessarily need, maybe it’s memberships out there, maybe it’s you go out to eat way too much, but people don’t understand that unless they see it on paper. So budgeting is one of those things that you know if you want to stop living that paycheck to paycheck life, that’s what’s going – that’s going to be the first thing that helps you get out of that, and along with that you want to cut back expenses, kind of like I just said. But when you’re budgeting, you want to try to figure out how you can put extra money onto that debt or how you can put extra money into that savings and make that a common theme into your budgeting and so that it’s just automatic. The last thing that helps with that stopping paycheck to paycheck living is quitting the credit card, and I know some people know how to fully utilize a credit card and they’re good with it, but the majority of people think that they know how to use a credit card but then end up just racking up credit card debt that they can’t get out of, and so my thought is if there’s ever been a time or if it’s a frequent occurrence that you don’t pay off that credit card in full every month, that you just need to stop that, don’t worry about the reward, and start using cash or something that’s going to help you get more budget friendly.
Host: What are we saving for? Are we going to use this money in the future? Are we saving it for our children or so that we can retire one day?
Jeremy: You know, it’s hard because nobody knows if you’re going to be able to use this money. Kind of like insurance, nobody knows what’s going to happen in the future. You might be saving all this money and then the unexpected happens and it doesn’t matter, or who knows what’s going to happen in the future with our economy or anything like that, but what I say and what I plan for is to plan for the things – that I’m going to need that money, and kind of like I mentioned before, the reason why we want to save this money, the importance of us saving this money is because we’re not going to have – the majority of millennials are not going to have pensions. There’s a possibility that we won’t have social security, which are guaranteed income sources for retirees right now, which helps them feel comfortable, but if you put it into perspective. Let’s say you build up a million dollar portfolio, and let’s say that our average withdrawal rate on that portfolio is 4%, that’s just kind of a broad average range, that means that on your million dollar portfolio without any other income, that’s going to provide you a $40,000 income per year. More than likely, that’s not enough, especially with inflation and things like that, the majority of people cannot survive on $40,000. So that kind of shows you the impact. Having a $40,000 portfolio is not necessarily going to provide you a ton of income, and so kind of what I say is, yes you want to have fun in the short term, right? I don’t think that it’s good to not do anything fun and just save all your money and things like that but you want to plan for the long term and that’s kind of where maybe doing a financial plan to understand how much you need to put back and things like that, that’s where that comes to an advantage for you as well.
Host: Jeremy, what about school loans? How can millennials get out from under those school loans enough to start saving some money?
Jeremy: Yeah, that’s a great question and I know that probably 95% of the people listening to this are probably in that boat there, including myself, and it is a juggle there as to what to do. There’s great resources out there, different companies that will help refinance student loans to help pay it off quicker at a lower interest rate. I can’t specifically name the companies, but there’s a ton out there that I think are beneficial. One thing that I do caution people on is creating this plan where you don’t invest anything for retirement and you just put everything on debt, which I think in theory is a fantastic idea; however, what I start seeing over time is that they don’t stick with their debt payoff plan, and therefore, they don’t start saving for retirement and they wait 15-20 years to start saving for retirement and you just can’t make up that time. So not that you need to put everything into retirement. You need to put a lot into your debt as well, but you kind of want to have a mixture of both. I think when you’re paying off debt and student loans, put the majority onto your debt to pay that off, but don’t neglect retirement. Keep putting at least something in there, whether it’s your 401K match or even $50-$100 a month into an IRA of some sort, you do want a mixture of both.
Host: When you’re talking about retirement money, where do healthcare costs figure into this future. For this age group, they’re not always thinking about the increasing healthcare costs and whether they’ll have health insurance at that point or whether Medicare will still be around and pay for what they need – how do we figure for healthcare costs?
Jeremy: Yeah, that’s where I think a well done financial plan comes into play. In the sense of, let’s just take a normal inflation rate on just income, and that’s usually roughly about 2% to 2.5%. When we do a financial plan, we actually calculate medical costs at about 4% to 5% per year of inflation. So that means every year we’re going to inflate and adjust your expenses on medical expenses about 4% to 5% per year and that’s hard to calculate for and so that’s why I think going into more of a financial plan to understand how this is going to affect you in the future is going to be really beneficial for you, and that’s also the reason why we need to start saving a lot more money because it’s going to be a lot more expensive unless something happens, but again I try to plan as to how things are progressing right now, and that is that it’s going to get more expensive, and therefore, I try to put into my own personal finances that I need to save more to cover those expenses in the future.
Host: What should a breakdown of our paycheck look like with rent, mortgage, food, utilities, gas? How should we budget?
Jeremy: So I’m going to say this in percentages of course because people have different paychecks, but I also want to make this, not necessarily general, but I’m going to focus on the big items that I think will set you up for success and allow you the opportunity to build your budget around them, and the primary one everybody knows is rent or mortgage or something along those lines, and what I say for this 25% of your after tax income is what you should allot for your mortgage. Now that’s not saying if you have already bought a house and you’re paying more than that, that you need to sell your home or anything like that, it’s just going to take a little more work to work around that budget, but if you’re looking at buying a home or if you’re looking at renting, 25% of your take home pay is probably the max that I would take that. The other thing that I think is very important is that savings. Everybody things or asks the question, how much should I be saving? I think a good starting rate would be about 10% of your pay going into your 401K and getting that match and things like that. 10% is good and working your way up to 15% if you feel comfortable. Now not everybody can go 10% right away, maybe you have to start at 5% or 6%, and then every year you just increase that, and as your pay goes up, don’t increase your living expenses all the way, maybe try adding more into your 401K or IRAs and try to save a little more there, build up your percentages. One more thing that I think will set you up for success in the future is having a, what I call a, dagnabbit budget and I put that on my budget, and what that is, is things come up, and I put this about 5% to 10% of income. Things come up all the time, whether it’s these birthday parties for kids that come up or your tire pops or just added expenses that always seem to come every month, and so I budget for that, and I think everybody should because if you don’t budget for that it’s always going to come up and you’re never going to be able to be within your budget. And then the last thing that I think is very important is giving, and whether it’s to a religious organization or a charitable organization, there’s a couple advantages that I think you have with giving, and that is I think it changes a mindset of money because money, a lot of people grasp onto, but once they have the heart of giving, then that really takes your mind off maybe wanting other things and knowing the impact that money can have on other people, and so I do 10% on giving, and I know that maybe that’s not where you need to start, maybe you need to start lower than that and then work your way up, but I think that’s a very important aspect to budgeting and money, financial wellness.
Host: Jeremy, other than this podcast, what resources do you recommend a young professional use or look to, to help them manage their finances?
Jeremy: Yeah I have a couple of places that I go regularly just to get some quick tips or maybe just to help me feel better about what I’m doing. The first one is, I am a very big Dave Ramsey fan. I think that his concept of how to manage money is top notch, right? You pay down your debt using cash, and really not – it comes to not buying things that you can’t afford essentially right? He has this quote, live like no one will to live like no one can, and I think that’s perfect. It might take a little bit of work at the start, but in the future it’s going to definitely pay off. So he has the financial peace university, the blog and that’s all online. A couple of other things that I go to is there’s this one blog that called Mr. Money Mustache and he just gives you tips on how to live a simple life as well as a group called the Minimalists, and they’re very extreme. I don’t do that but I think the concept of what they’re trying to create is good in our generation and then as far as resources and tools that they can use, there’s budgeting apps all over the place. Mint is one and Personal Capital is one and they’re to help you really figure out how to budget and just give you a guide to budget so I would definitely recommend utilizing those as well as there’s a lot of savings apps, whether it’s investment apps or just personal savings to help you understand how to start saving for retirement or other purchases. So I can’t of course specific examples on those but they’re out there for people to research and utilize, and the last thing I’d like to say, and probably my best advice is that everybody young and old could benefit and should get a financial plan in place. That’s going to help them understand what they need to budget for. That’s going to help them understand how much they need to save for retirement, what they’re looking at for expenses potentially in retirement, and let’s be clear, doing a plan at a millennial age, it’s going to change in the future but at least gives you something to work towards. Every financial institution has some sort of financial plan. There’s some online that you can look up and you can get ideas from online, but regardless of who you do it with, where you go, it’s going to be beneficial for you. So that would be my primary advice is to do a financial plan.
Host: Thank you so much Jeremy for being on with us today. It’s great information for not only millennials to hear, but baby boomers as well because we’re all kind of in the same boat and unsure of our financial situation and not always sure of how to budget, and so thank you for that great information and thanks to our Bryan Foundation partner Mapes Industries. This is Bryan Health Podcast. For more information, please visit bryanhealth.org, that’s bryanhealth.org. This is Melanie Cole, thanks so much for listening.
Financial Tips for Millennials
Melanie Cole (Host): We all know it’s hard to feel optimistic if you’re living paycheck to paycheck and your finances are not quite where you’d like them to be. My guest today is Jeremy Palensky. He’s an investment advisor from First National Bank. Jeremy, we’re so glad to have you with us to tell us about financial wellness for millennials. Let’s start with what do you consider financial wellness? What does it mean to be financially well off?
Jeremy Palensky (Guest): Yeah well you have a lot of different aspects that can play into your financial wellness, whether that’s retirement, which is a long term goal for a lot of people, or maybe it’s short term goals like buying a house or saving for education. So financial wellness to me is understanding what your goals are, whether long or short and figuring out what is the best way that you can actually plan for that to make those goals happen realistically as well. That’s kind of what we want to cover today is really looking at those types of goals, what is the best way to position myself to have a better financial future.
Host: It certainly is a what do you see are the biggest fears that millennials have?
Jeremy: There’s a lot of I think fears that we have. Being a millennial myself, I guess kind of on the higher end of being a millennial, a couple of fears that I have are for the future in the sense of – if we look at our parent’s generation, we see that they have pensions, they didn’t have as high of health care costs, they’re dealing with that now, but they didn’t have that when they started retirement. They might have social security, which is something we might not be able to utilize when we’re older, and so there’s some fears that I think about when my generation starts getting into retirement, and I think one of those problems, a problem that may arise, is that we’re not planning for those types of things, we’re not thinking about those things because the information is not getting out there, which I guess this is awesome that we’re providing this resource to people to try to educate them on having a better financial future and trying to build for that future.
Host: Then let’s get right into some tips to stop living paycheck to paycheck and what are some common mistakes that millennials make with their money?
Jeremy: Yeah, I think we under utilize the power of budgeting. I think people know what budgeting is, but they don’t actually fully get into budgeting as to making it effective for them. Budgeting can be great for not only knowing what income is coming into you, but what’s going out, and then you can kind of see how much is going to things that you don’t necessarily need, maybe it’s memberships out there, maybe it’s you go out to eat way too much, but people don’t understand that unless they see it on paper. So budgeting is one of those things that you know if you want to stop living that paycheck to paycheck life, that’s what’s going – that’s going to be the first thing that helps you get out of that, and along with that you want to cut back expenses, kind of like I just said. But when you’re budgeting, you want to try to figure out how you can put extra money onto that debt or how you can put extra money into that savings and make that a common theme into your budgeting and so that it’s just automatic. The last thing that helps with that stopping paycheck to paycheck living is quitting the credit card, and I know some people know how to fully utilize a credit card and they’re good with it, but the majority of people think that they know how to use a credit card but then end up just racking up credit card debt that they can’t get out of, and so my thought is if there’s ever been a time or if it’s a frequent occurrence that you don’t pay off that credit card in full every month, that you just need to stop that, don’t worry about the reward, and start using cash or something that’s going to help you get more budget friendly.
Host: What are we saving for? Are we going to use this money in the future? Are we saving it for our children or so that we can retire one day?
Jeremy: You know, it’s hard because nobody knows if you’re going to be able to use this money. Kind of like insurance, nobody knows what’s going to happen in the future. You might be saving all this money and then the unexpected happens and it doesn’t matter, or who knows what’s going to happen in the future with our economy or anything like that, but what I say and what I plan for is to plan for the things – that I’m going to need that money, and kind of like I mentioned before, the reason why we want to save this money, the importance of us saving this money is because we’re not going to have – the majority of millennials are not going to have pensions. There’s a possibility that we won’t have social security, which are guaranteed income sources for retirees right now, which helps them feel comfortable, but if you put it into perspective. Let’s say you build up a million dollar portfolio, and let’s say that our average withdrawal rate on that portfolio is 4%, that’s just kind of a broad average range, that means that on your million dollar portfolio without any other income, that’s going to provide you a $40,000 income per year. More than likely, that’s not enough, especially with inflation and things like that, the majority of people cannot survive on $40,000. So that kind of shows you the impact. Having a $40,000 portfolio is not necessarily going to provide you a ton of income, and so kind of what I say is, yes you want to have fun in the short term, right? I don’t think that it’s good to not do anything fun and just save all your money and things like that but you want to plan for the long term and that’s kind of where maybe doing a financial plan to understand how much you need to put back and things like that, that’s where that comes to an advantage for you as well.
Host: Jeremy, what about school loans? How can millennials get out from under those school loans enough to start saving some money?
Jeremy: Yeah, that’s a great question and I know that probably 95% of the people listening to this are probably in that boat there, including myself, and it is a juggle there as to what to do. There’s great resources out there, different companies that will help refinance student loans to help pay it off quicker at a lower interest rate. I can’t specifically name the companies, but there’s a ton out there that I think are beneficial. One thing that I do caution people on is creating this plan where you don’t invest anything for retirement and you just put everything on debt, which I think in theory is a fantastic idea; however, what I start seeing over time is that they don’t stick with their debt payoff plan, and therefore, they don’t start saving for retirement and they wait 15-20 years to start saving for retirement and you just can’t make up that time. So not that you need to put everything into retirement. You need to put a lot into your debt as well, but you kind of want to have a mixture of both. I think when you’re paying off debt and student loans, put the majority onto your debt to pay that off, but don’t neglect retirement. Keep putting at least something in there, whether it’s your 401K match or even $50-$100 a month into an IRA of some sort, you do want a mixture of both.
Host: When you’re talking about retirement money, where do healthcare costs figure into this future. For this age group, they’re not always thinking about the increasing healthcare costs and whether they’ll have health insurance at that point or whether Medicare will still be around and pay for what they need – how do we figure for healthcare costs?
Jeremy: Yeah, that’s where I think a well done financial plan comes into play. In the sense of, let’s just take a normal inflation rate on just income, and that’s usually roughly about 2% to 2.5%. When we do a financial plan, we actually calculate medical costs at about 4% to 5% per year of inflation. So that means every year we’re going to inflate and adjust your expenses on medical expenses about 4% to 5% per year and that’s hard to calculate for and so that’s why I think going into more of a financial plan to understand how this is going to affect you in the future is going to be really beneficial for you, and that’s also the reason why we need to start saving a lot more money because it’s going to be a lot more expensive unless something happens, but again I try to plan as to how things are progressing right now, and that is that it’s going to get more expensive, and therefore, I try to put into my own personal finances that I need to save more to cover those expenses in the future.
Host: What should a breakdown of our paycheck look like with rent, mortgage, food, utilities, gas? How should we budget?
Jeremy: So I’m going to say this in percentages of course because people have different paychecks, but I also want to make this, not necessarily general, but I’m going to focus on the big items that I think will set you up for success and allow you the opportunity to build your budget around them, and the primary one everybody knows is rent or mortgage or something along those lines, and what I say for this 25% of your after tax income is what you should allot for your mortgage. Now that’s not saying if you have already bought a house and you’re paying more than that, that you need to sell your home or anything like that, it’s just going to take a little more work to work around that budget, but if you’re looking at buying a home or if you’re looking at renting, 25% of your take home pay is probably the max that I would take that. The other thing that I think is very important is that savings. Everybody things or asks the question, how much should I be saving? I think a good starting rate would be about 10% of your pay going into your 401K and getting that match and things like that. 10% is good and working your way up to 15% if you feel comfortable. Now not everybody can go 10% right away, maybe you have to start at 5% or 6%, and then every year you just increase that, and as your pay goes up, don’t increase your living expenses all the way, maybe try adding more into your 401K or IRAs and try to save a little more there, build up your percentages. One more thing that I think will set you up for success in the future is having a, what I call a, dagnabbit budget and I put that on my budget, and what that is, is things come up, and I put this about 5% to 10% of income. Things come up all the time, whether it’s these birthday parties for kids that come up or your tire pops or just added expenses that always seem to come every month, and so I budget for that, and I think everybody should because if you don’t budget for that it’s always going to come up and you’re never going to be able to be within your budget. And then the last thing that I think is very important is giving, and whether it’s to a religious organization or a charitable organization, there’s a couple advantages that I think you have with giving, and that is I think it changes a mindset of money because money, a lot of people grasp onto, but once they have the heart of giving, then that really takes your mind off maybe wanting other things and knowing the impact that money can have on other people, and so I do 10% on giving, and I know that maybe that’s not where you need to start, maybe you need to start lower than that and then work your way up, but I think that’s a very important aspect to budgeting and money, financial wellness.
Host: Jeremy, other than this podcast, what resources do you recommend a young professional use or look to, to help them manage their finances?
Jeremy: Yeah I have a couple of places that I go regularly just to get some quick tips or maybe just to help me feel better about what I’m doing. The first one is, I am a very big Dave Ramsey fan. I think that his concept of how to manage money is top notch, right? You pay down your debt using cash, and really not – it comes to not buying things that you can’t afford essentially right? He has this quote, live like no one will to live like no one can, and I think that’s perfect. It might take a little bit of work at the start, but in the future it’s going to definitely pay off. So he has the financial peace university, the blog and that’s all online. A couple of other things that I go to is there’s this one blog that called Mr. Money Mustache and he just gives you tips on how to live a simple life as well as a group called the Minimalists, and they’re very extreme. I don’t do that but I think the concept of what they’re trying to create is good in our generation and then as far as resources and tools that they can use, there’s budgeting apps all over the place. Mint is one and Personal Capital is one and they’re to help you really figure out how to budget and just give you a guide to budget so I would definitely recommend utilizing those as well as there’s a lot of savings apps, whether it’s investment apps or just personal savings to help you understand how to start saving for retirement or other purchases. So I can’t of course specific examples on those but they’re out there for people to research and utilize, and the last thing I’d like to say, and probably my best advice is that everybody young and old could benefit and should get a financial plan in place. That’s going to help them understand what they need to budget for. That’s going to help them understand how much they need to save for retirement, what they’re looking at for expenses potentially in retirement, and let’s be clear, doing a plan at a millennial age, it’s going to change in the future but at least gives you something to work towards. Every financial institution has some sort of financial plan. There’s some online that you can look up and you can get ideas from online, but regardless of who you do it with, where you go, it’s going to be beneficial for you. So that would be my primary advice is to do a financial plan.
Host: Thank you so much Jeremy for being on with us today. It’s great information for not only millennials to hear, but baby boomers as well because we’re all kind of in the same boat and unsure of our financial situation and not always sure of how to budget, and so thank you for that great information and thanks to our Bryan Foundation partner Mapes Industries. This is Bryan Health Podcast. For more information, please visit bryanhealth.org, that’s bryanhealth.org. This is Melanie Cole, thanks so much for listening.