If you picture millennials as college kids who spend most of their time on their phones and who don’t know anything about any other country outside the United States, then you are dead wrong.
You are a millennial if you were born in the period between 1980 and 2000; you lived through the recession, and you are between 20 and 40 years old.
Why Wealth Building knowledge is Extremely Important for Millennials
Many millennials are highly educated, and yet they face lower incomes and higher debts than the previous generation. According to The Atlantic Magazine, “Millennials are the best educated in American history with more than a third holding a bachelor’s degree or higher.”
However, this high level of education has not translated into great wealth for millennials. The reality is that education is costly for millennials, and housing costs are way higher than they were for Baby Boomers (the previous generation). Therefore, it’s no surprise then that many millennials find it difficult to make financial plans for retirement and to build wealth. Yet, to succeed in life and to prepare for the future, wealth building is of great importance.
As a millennial, this article will introduce you to strategies that you can use to build wealth and prepare adequately for your future.
15 Wealth Building Strategies for Millennials
Start saving and investing early
Many millennials witnessed the recession and the reckless investment decisions of bankers that caused it. This has led many to believe that investing is too risky an endeavor to contemplate.
They couldn’t be more wrong. The worst decision you can make as a millennial is to avoid investing when you are in your mid-20s and your 30s. If you start investing early, it gives your money more time to grow, and it allows the impact of compound interest to take effect.
Get a side hustle
We all know we have to make money before we have something to invest in. If you don’t have spare cash to invest, then you cannot build wealth.
A side hustle will help you earn more money that you can use to invest. A side hustle is a side job you do in your spare time alongside your 9 to 5.
There are so many side jobs that can provide you with a credible source of significant extra income. You can sign up as a freelance writer on platforms like Upwork if you are good at writing. You can drive for ride-sharing services like Lyft or Uber. You can also start a blog and monetize it as a source of passive income.
Investing in your 401(k)
If your employer offers a 401(k) program, then you should take advantage of it. In a 401(k), your employer will match 100% of your contribution to your 401(k) program.
For example, if you earn $50,000 and you are contributing $5,000 or 10% of that, your employer will also contribute $5,000 to your 401(k) plan.
You would have saved double the amount you contributed, and the earlier you start, the more wealth you will create over the years.
You really should not turn away free money from your employer.
Investing in a Roth IRA
A Roth IRA is an excellent option if the employer you work for does not have a 401(k) program or if you cannot meet the limits of the traditional IRA.
The way a Roth IRA works is that you contribute periodically to a pooled investment fund, and you will be able to make tax-free withdrawals in the future.
A good fund will get you a consistent annual return of over 6%, which will compound and grow exponentially over the years.
Maximize your Health Savings Account (HSA)
According to Fidelity, the average retired American couple should expect medical expenses of up to $245,000, and this will only be covered partially by Medicare; the rest must be paid out of pocket.
An HSA offers the opportunity to save for your future in an account that grows on a tax-free basis while paying current medical expenses from your pocket at a time when you are young and healthy.
It is an opportunity you should see as another retirement savings account. You can sign up for an HSA using a platform likeLively.
Investing in a money market account
A money market account is a liquid investment option to save money and earn a higher interest rate than you will get in a savings account. It is liquid because you can make up to six withdrawals in a month. It is also very safe since it is FDIC insured.
Investing in Treasury securities
In the popular TV show, the saying goes that, “a Lannister always pays his debt.” Well, the United States government is wealthier than the Lannisters, and it always pays its debts.
Treasury bills issued by the United States government are the safest investments you can make. Investing this way will not make you rich, but it is a safe way to monetize a block of cash you do not need immediately.
Investing in a Broad Market Index Fund
The stock market is still one of the most credible mediums to build wealth; just ask Warren Buffet. But stocks can be volatile, and your investment can get a beat down.
A Broad Market Index Fund tries to find a way around this insecurity by spreading the fund across an entire stock market index.
For example, the S&P 500 index contains 500 companies. A Broad Market Index Fund will attempt to mirror the S&P index by spreading out the fund across all the 500 companies. This spreads the risk and makes your investment more secure.
This type of funds has also extensively outperformed other mutual funds over the past decade. Companies like Vanguard Group and Franklin Templeton Investment offer this type of funds.
Investing in peer-to-peer (P2P) lending platforms
P2P platforms match lenders with individuals or businesses looking to borrow money.It works like this; someone wants to borrow money at a specific rate but cannot get a secured loan from traditional money lenders. The person will then post a request on a P2P platform, and investors will go through loan requests and lend to any borrower they like.
P2P platforms generate a higher rate of income for investors than fixed income securities, and you can get started with just $1,000 on most P2P platforms.
Wealth Building by investing in real estate
If you have no reservations about the effort it takes to buy the right property, maintain it, and becoming a landlord; then this could be a credible wealth-building strategy for you.
Investing in real estate will not bring immense wealth overnight, but it will boost your net worth and provide a steady and reliable stream of income you can use to invest in other opportunities.
Investing in crowdfunded real estate
You will like to invest in real estate, but you can’t stand the hassle that comes with being a landlord, or you simply don’t have enough funds.Real estate crowdfunding is an alternative option for you.
Real estate developers use funds pooled from a crowd of investors to finance their projects, and you, as an investor, will get a low-risk investment vehicle to put money into with very impressive returns. Some of the more popular Crowdfunding platforms includeFundrise, Realty Mogul, and Crowdstreet.
Investing in an online high-yield savings account
These accounts offer a higher interest rate than a traditional savings account, they are NDIC insured, and they are liquid.
You can add and withdraw cash at any time, which makes them an excellent place to stash cash you do not need today, but you might need it in the immediate future.
Wealth Building by investing in growth stocks
Growth stocks are the high flying stocks in the market, they are growing quickly, investors love them, and they can return 20% and more, over several years.
However, investing in the stock market comes with a significant amount of risk.This is because, unlike savings account or treasury bills, there is no government backing. The value of your stocks simply depends on the prevailing sentiments of the stock market. Nevertheless, investing in growth stocks is one of the fastest ways to build wealth.
Growth stocks tend to be tech companies and companies that are successful upstarts in their sectors. Some growth stocks of the past decade are Facebook, Amazon, Tesla, Alphabet Inc., and others.
You can explore this option by investing yourself directly or by putting your funds in a Mutual Fund that focuses on growth stocks to get the benefit of professional management.
Investing in Certificates of Deposit (CD)
CDs are an illiquid but more lucrative way to invest in fixed deposit securities. CDs offer a higher rate of interest than savings accounts, and the FDIC insures them.
When you buy a CD, your investment is locked for some time, and you will be paid a fixed interest at predetermined intervals.When the CD matures, you will get your principal back along with accrued interest. It is a long term investment option that can be useful when you have a large sum of money you don’t want to spend, and you are looking for a safe place to invest the money.
Wealth building is about investing in yourself
The best investment you can make is the investment you make in developing your professional skills. The ultimate risk-free way to boost your income and create new wealth is to get the skills that will make you more valuable to your employer.
You don’t have complete control over most of the investment strategies listed above, but you have control over your career development plans. Your health is also of great importance. You have only one life, and you must be in good health before you enjoy wealth.
You must take your health very seriously and keep yourself in a sound physical, and mental state.
With the unique challenges facing millennials, you must prioritize wealth building as early as possible. Because building wealth requires hard work, patience, and discipline. And these wealth-building strategies are no quick fixes either. Although it can be hard now to live beneath your means, strive to make more money, and invest, you will have a much easier life later on.