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Why millennials should go on a financial diet - and how to do it

It's time to stop splurging and start saving

Olivia Petter
Monday 19 March 2018 18:36
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We take too many selfies, we swipe ourselves silly on dating apps, we complain too much, we’re picky eaters... oh, and we’re less likely to get married than previous generations (and if we do we’ll probably propose with an avocado, because we do everything with avocados).

Millennials get bad press across the board - but one ubiquitous criticism that’s particularly detrimental to our already-cursed existence is how poor we are at managing our finances.

This is something American writer Chelsea Fagan is intent on fixing with her new book The Financial Diet: A Total Beginner's Guide to Getting Good with Money, which dubs itself a personal finance book for people who don’t care about personal finance i.e. almost every millennial ever.

So, when it comes to pennies, where are millennials going so drastically wrong?

Well, we spend three times more of our income on rent than our grandparents and according to one savvy Australian millionaire, we’ll never get on the housing ladder because we’re spending too much on avocado toast.

It's not just Insta-friendly breakfasts that are setting us back financially, a recent study by estate agency Strutt & Parker claimed that millennials could save £64,000 if they stopped splurging on unnecessary “luxuries” such as sandwiches and lottery tickets.

This is why Fagan says it’s crucial to work out what is valuable to you in the wider sense (maybe your daily ham and cheese sarnie brings you the joy that befits a £4.99 price tag) and identify the things you could spend less on to compromise.

“Ultimately, what actually has value in terms of ‘extra’ spending is what you get the most enjoyment out of,” she explained to The Independent, adding that this will naturally differ depending on an individual's personal tastes.

“For one person who loves music, it might be a really fantastic pair of headphones they use every day at the office,” she said.

“For someone else, it might be an indulgent dinner at a new Italian restaurant.

“The point is, you have to be brutally honest with yourself about what you actually get the most joy from, and what is just mindless spending.”

One way Fagan suggests doing this is by checking over your bank balance from the last month and highlighting any purchases you don't remember making.

“Without trying, there you already have a pretty solid list of things to cut when budgeting for next month,” she said.

“And when it comes to actual objects, measure in cost-per-use, not up-front cost. The more expensive shoes that last you three years may ultimately be much cheaper in the long-run than the fast-fashion ones you are constantly having to replace.”

One splurge Fagan suggests we could all cut back on is eating out and ordering takeaways.

“Our book has an entire category just on mastering your kitchen and learning the basics of cooking for yourself, because in America, millennials are now spending more money on food eaten out of the home than they are on home cooking.

“Being able to make yourself healthy, affordable, consistent food on a regular basis should be considered a basic tenet of adult life, not some kind of aspirational hobby.”

From finding the perfect budget to seeking out extra income sources, here, Fagan shares her top tips for millennials who want to stop spending and start saving, even if they feel like they have no money to save.

Set yourself a realistic budget - and stick to it

While Fagan says there’s not magical ratio for creating the perfect budget, when it comes to splitting up your salary, she advises working towards the 50/30/20 rule.

Essentially, this breaks down to spending 50 per cent of one's income on foundational, stable costs, such as rent, utilities and transportation.

Then, 30 per cent should go to flexible costs, such as phone bills, shopping and eating. “This is where you can make big changes,” she says, advising swapping meals out for meals in wherever possible.

“Challenge yourself to cut out at least one area of spending, whether that is trips to the pub, high street fashion or buying lunch near the office,” she says.

Finally, 20 per cent should be left aside for savings and debt repayments.

“It can take you a while to get to a 20 per cent ratio for this,” Fagan adds, “but if you commit yourself to working down your overspending in the 30 per cent category (and reducing big things like rent if you can), it is attainable for many people.”

Aim to build up an emergency fund

Ideally, this should surmount to around three months' living costs which can be stored in an easily-accessible savings account, Fagan advises.

You never know when you’ll need to dig into your savings, so this could be a real life-saver.

Find extra sources of income

Commit to adding at least one additional source of income on top of what you're already earning, even if it's just babysitting once a month.

"Dog walking, online tutoring and event catering are all super easy to pick up when you want and not have to commit to," she said.

Fagan also advises selling unused clothes or household items once a year to ensure you're not holding onto unnecessary items when you could pass them on for a small profit.

Manage your debt

If you have debt, Fagan advises seriously analysing the way you are repaying it and ensuring you have researched and considered all options in terms of the best payment plans, financing options, and how much money you are putting towards repaying that debt each month.

“These things allow you to be protected from the variables of life, work towards larger goals, and make yourself a desirable candidate for everything from renting an apartment to getting a loan to buying a car,” Fagan concludes.

“Obviously, beyond these things, you'll want to build in terms of investments or bigger-picture financial stuff (such as buying a home), but these tips give you the foundation from which to begin.”

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