Millennials: seven expert tips to help you manage your money wisely

In the second of our fortnightly series on money management for different generations, Gen Y are advised to clear their debts early and avoid the 'fear of missing out'

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Jandre Nieuwoudt, 32, has been prudent with money from a young age and always focused on saving. Although he started working part-time aged 16, it was only after coming to Dubai after his university studies that Mr Nieuwoudt could start saving and investing in a meaningful way.

"To me, having a financial safety net means peace of mind, freedom and new opportunities," the millennial, a South African corporate communications executive who has been living and working in Dubai for more than 10 years, tells The National.

He owns a property in the emirate that is rented out and has also been investing in index funds over the past few years after paying off his mortgage. Despite investing a small amount in Bitcoin and Ethereum a few years ago, Mr Nieuwoudt does not wish to put money into cryptocurrencies for the time being.

Jandré Nieuwoudt, a millennial, owns a property in Dubai and also invests in index funds. Courtesy: Jandré Nieuwoudt

Millennials, the generation born between 1981 and 1996, wield about $200 billion worth of spending power in the US alone, research by global consultancy McKinsey shows.

“After accounting for the present crisis, the average millennial has experienced slower economic growth since entering the workforce than any other generation in US history. It is, therefore, essential that the millennial generation must be well-rounded with skills and tips to manage their finances,” says Vijay Valecha, chief investment officer at Century Financial.

When it comes to investing, millennials expect an annual return of about 12 per cent from their entire portfolio over the next five years, according to the Schroders' 2020 global investor study of more than 23,000 people from 32 countries.

To me, having a financial safety net means peace of mind, freedom and new opportunities

Although Mr Nieuwoudt admits to having a “reasonably low” risk appetite, his index funds are stock-heavy because of his age, he says.

“The split between real estate and the stock market feels like a healthy balance – I always have somewhere to live and the ease of buying and selling stocks quickly and easily should I need cash,” he says.

He started off his investment journey with Suze Orman's TV shows and podcasts and Andrew Hallam's Millionaire Teacher and Millionaire Expat books. The millennial now continues to educate himself through in-person events, blogs, Facebook groups and additional reading.

Speaking about his retirement plans, Mr Nieuwoudt says it will take a few more years before he begins to reap the benefits of compound interest.

So, how can millennials best plan for the future and what are the common pitfalls they should avoid?

It is never too late to start

Start by saving 20 per cent of your monthly income, says Rupert Connor, a partner at Abacus Financial Consultants. This amount can be increased as your salary increases with promotions.

“In the UAE, most companies are not obliged to provide an employee pension scheme like in other countries, so it is imperative that millennials make their own provision for the future. However, many delay beginning to build a nest egg altogether,” he says.

He advises millennials with a steady income stream or stable employment to save while they can.

Start by saving 20 per cent of your monthly income

Millennials must try to put money aside each month, no matter how small the amount, to take advantage of the effect of compound interest, according to Chris Keeling, a chartered financial planner at The Fry Group.

“The youngest millennials are now around 25 years old. A 25-year-old saving $400 a month would amass $1 million when they reach age 65, based on a 7 per cent per annum investment return. Delaying saving by 10 years would reduce this to $453,000,” Mr Keeling says.

Avoid social media advice

Financial experts warn millennials against taking financial advice from social media platforms.

Thousands of novice millennial traders turned to social media to learn money skills during the pandemic, making the FinTok hashtag popular.

“Trends on TikTok are not only limited to travel, memes and lifestyle anymore," says Mr Valecha, with hashtags such as #FinTok for videos that provide financial advice received by a growing audience.

However, he says that while it is easy to act on advice that appears catchy, the information provided may not always be accurate.

Try to pay off debts

About 76 per cent of millennials have some kind of debt, according to Bank of America's 2020 Better Money Habits Millennial report.

“Although not all debt is bad, it can become problematic when it cannot be easily repaid. Having a history of missing debt repayments can adversely affect your credit history. Making an effort to repay student loans or credit cards will make this much easier,” says Mr Keeling.

Millennials must avoid taking on toxic debt, which refers to loans and other types of credit that have a low chance of being repaid with interest, experts say.

“Debt is not always toxic but when money is borrowed to purchase assets or buy experiences that depreciate in value, the interest payments may only weigh you down financially. These assets pay no passive income and the interest is not deductible,” says Mr Valecha.

Invest with a conscience

Millennials are increasingly prioritising the use of environmental, social and governance factors in deciding where to invest their money.

A 2019 survey by financial services group Allianz found that 64 per cent of millennials are expected to make investment decisions based on societal problems that are important to them.

“This can be defined as supporting sustainability objectives while aiming to achieve one’s financial goals. This means investing in funds that advance businesses, which provide solutions to sustainability issues or have strong corporate policies and output [linked] to ESG criteria,” says Mr Connor.

There is growing evidence that suggests responsible investing solutions may provide superior long-term returns, he says.

Control your 'fomo'

Too often, millennials let the “fear of missing out” guide their money choices.

“The important thing to note here is that people usually boast about their victories and not their failures. So, one should never blindly follow any strategy but use proper due diligence before believing rumours and falling for the marketing trap,” says Mr Valecha.

Be on top of your finances

Millennials have been known to make bad spending decisions but they could correct this through more careful budgeting.

“Know all your outgoings and try to ensure [the amount is] not greater than your total income from all sources. This will give you confidence that you are within budget and therefore not relying on short-term credit such as credit cards and overdrafts,” says Mr Keeling.

If millennials find themselves spending more than their income, they can cut out any non-essential spending such as TV subscriptions or gym memberships, he says.

There is a multitude of free apps and calculators available to assist with budgeting, record outgoings and manage finances, according to Mr Connor.

One should never blindly follow any strategy but use proper due diligence before believing rumours and falling for the marketing trap

“The biggest single point of failure with money is a sole reliance on a pay cheque to fund short-term spending needs, with no savings,” he says.

“Where one lives, what car one drives and where one holidays are all nice-to-haves but if someone is not saving at the same time, this demonstrates a level of irresponsibility.”

Play to your strengths, but patiently

Millennials have become accustomed to using technology for every aspect of their lives, so it only makes sense that digital technology plays a significant role in their investment approach as well, according to Mr Valecha of Century Financial.

About 45 per cent of millennials are open to using alternatives such as Google's investment options, having grown up with technology brands at the centre of their lives, according to Accenture's Millennials & Money: The Millennial Investor Becomes a Force report.

“However, with continuous monitoring of investment, millennials can sometimes be impatient and expect quick results, which is not ideal for investing,” says Mr Valecha.

Millennial traders must be patient and disciplined, and to keep their emotions and snap judgments in check, he says.