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The First Five Steps of Financial Advice for Millennials

| August 26, 2020

OK, first thing's first. You've probably heard of "TNSTAAFL" before. (There's no such thing as a free lunch.) If you haven't it's the idea that NOTHING is "free," including this article. Why? Because it costs your time (i.e. opportunity cost) to read it. So "invest" wisely by digesting these important tips for setting yourself up for financial success. And another disclaimer: This is general advice. Everyone is different. But if you're a millennial looking for good, general financial advice on how to build wealth, this article is for you.

Step 1: Start with life insurance.

In 18 years of being in the financial industry, I've seen a few too many times when we lose a young person too soon. Well let me tell you, it's very hard to reach long term goals for your family if you die early. Like, nearly impossible. So if you've started a family, get your life insurance in order first. I recommend, as a general rule, 20x your annual income, minus your current assets. (I could write a whole blog on why that amount, but that's for another time.) For example, if I make $70,000/year, that's $1,400,000 of insurance need at 20x my salary. But, I have $50,000 equity in my home, and $40,000 in my 401k, (so I subtract the $90,000 of assets from the $1,400,000,) and $1,310,000 is what I need today.  

And by the way here's an actual snip of our life insurance quoting software for a 30 year old Male, 20 Year Term life policy, with the "Best Rates." Of course, everyone is underwritten differently, but you get a ballpark idea: Term Insurance does not have to break the bank. 

The last thing I'll say about life insurance is stay away from cash value life insurance (i.e. Whole Life, Universal Life, Variable Life, etc.) unless you fully understand what you're buying. These are not "bad" strategies as some would say. They can actually be very, very good. But most people don't understand what they're buying (and frankly a lot of agents don't understand what they're selling,) and they wind of cancelling their policies, costing them lots of money in surrender penalties. And above all else, stay away from ANY salesperson who tries to get you to buy a cash value life policy before getting the right amount of death benefit. And have them call me...

Step 2: Get Every Single Matching Dollar Out of your Company Retirement Plan.

It's so tempting to say that you should do some other steps first, but the reality is, the "match" in most employer's retirement plan is just too good to pass up. What's a match? Well, for example, if your company has a 401k, it may have a "dollar for dollar" match up to a certain percentage, like maybe 4% or so. That means if your paycheck every two weeks is $3,000 before taxes, and you elect 4% withheld, you're putting $120 toward your retirement, and your company is also putting in another $120. Let me be clear, there is no other investment vehicle I'm aware of in a 100% match on your money, every time. This should go without saying, but I see a lot of people not taking advantage of this. Do it!

(Side note: Employer retirement plans are all different. Read the fine print. Understand the options. And if you need help, we're here.)

Step 3: Emergency Fund.

Everyone is different here on the amount. I recommend one month's cash as a general rule of thumb. It's a bit personal, but I don't mind sharing as an example, my wife and I keep $10,000 in our personal checking account as our "floor." So, instead of "zero" being the floor at the end of each month, $10,000 is. It took us a while to get there, but we set a goal and did it. You will too, if you haven't already.

Step 4: Debt Sucks. Get rid of it.

I'm not talking about mortgage debt. Nearly everyone has a mortgage. But personal, credit card, and student loan debt is strapping millions of millennials everywhere. Dave Ramsey's Debt Snowball Strategy is as good as any out there. Bottom line, debt is a burden on your quality of life. Put a strategy together. Knock it out ASAP. You'll be so glad you did.

Step 5: "Pay Yourself First."

You've probably heard this one before. Once you've done the previous steps, it's time to put more money away. Every single paycheck, take some of it and invest it. (What you invest in is totally up to you. If you need help, call us.)  Keep in mind, this is what we call "non-qualified" money. So you're going to want to pay attention to the tax consequences of when you buy and sell things. 


I totally want to keep going! But my guess is you're not as geeked out about this stuff as I am. I'll post another blog later about future steps. In that blog, we'll cover: Building a budget, Your Earning Potential, Giving, Personal Well Being, and more!  I hope these steps were valuable. It doesn't have to be too complicated. Also, we've launched Prologue, a subscription financial planning and coaching service for people just like you. If you want someone to go on this journey with you, BMG is here for you.