Most Millennials have grown into the young adults of today, and are generally considered to comprise the age group born between 1980 and 2000. These are the people struggling with issues like student loan debts, trying to enter the workforce, looking at buying homes, or moving back in with their parents.
This is also the generation currently dealing with a nationwide $1.2 trillion student loan debt, a $17 trillion dollar national debt, and whatever debt is incurred over the next few decades. They are considered ill prepared for financial management. For these young people, one rule of thumb for financial success is to follow the 50/30/20 rule.
An oft-repeated phrase to those trying to plan for economically stable futures is “live below your means.” Unfortunately, many people don’t understand what their means are, or what it means to live below them. A popular rule suggested by financial management professionals is to break up income into three parts: necessary payments, future investments, and non-essential payments.
- Necessary payments. This is the 50 in the 50/30/20 rule. Take 50 percent of your income and use it for housing, transportation, and groceries. Car payments, apartment rent, mortgages, utilities bills; all of the payments that you have to make to live a comfortable life should be covered by 50 percent of your income.
- Future investments. Invest 20 percent or more of your income for the future. 401k accounts, savings accounts, or an emergency fund are all viable options for protecting your future financial interests.
- Non-essentials. Once you have paid all of your necessary payments and set aside money for your future, you can use the remaining 30 percent (or less) or your income on clothes, eating out, and other treats that you could conceivably do without.
By following this plan, Millennials and others entering the financial world can be better prepared for the future.