Guest Author Blog: How "Generation Earn" Can Get Ahead by Kimberly Palmer, author of "GENERATION EARN: The Young Professional’s Guide to Spending, Investing, and Giving Back"
Somehow, my generation has earned a bad rap when it comes to money. We’ve been pegged as ‘generation debt,’ living at home with our parents while taking years to finish school, settle on a career, and choose a romantic partner. But that stereotype, it turns out, isn’t quite accurate.
First of all, we aren’t drowning in debt. While we do carry more student loan and credit card debt than our parents, that’s largely because more of us are earning degrees, and we’re staying in school for longer. That means we have greater earning power to pay back that debt.
Nor are we terrible with money. In fact, a slew of recent surveys have underscored that generation Y (today’s 20-somethings) have learned from the recession, and don’t want to repeat their parents’ debt-fueled mistakes. So far, this generation appears to save more, spend less, and do more research before investing.
We’re also not raiding our parents’ retirement accounts, either, despite the fact that primetime television suggests otherwise. A handful of recent hits, including NBC’s Parenthood, CBS’ $#*! My Dad Says, and Fox’s Raising Hope, depict grown adults leaning on their parents’ generosity to fund their own lifestyles. But while it’s true our parents have been very helpful to us as we find our footing, we’ll soon be returning the favor. A Charles Schwab survey found that two in five of us expect to provide financial support to our parents one day.
Given that new reality, here are five steps 20- and 30-somethings should take to get on top of their finances today:
Save like crazy. You might think it’s hard to spend less than you earn, but the fact is, it’s only going to get harder as you get older and take on an ever-growing list of responsibilities. That’s why getting in the habit of putting away one-third of your income (including retirement savings) can’t happen soon enough. Focusing on minimizing the big three costs – housing, food, and transportation – is a good start.
Invest in yourself. Even when you’re being frugal elsewhere, now is the time to put money into your future career in the form of extra education, books, professional coaching, and even a new wardrobe if that’s important to your line of work. Take time to seek out and meet with potential mentors.
Find an alternate income stream. These days, one full-time job isn’t enough. Workers need a back-up plan or two, which means earning additional income on the side in the form of freelance or contract work, a small business, or even something as straightforward as tutoring. Then, if you get unexpectedly laid off, you have a back-up plan, as well as more cash to put towards your savings goal.
Don’t be overly afraid of debt — but pay it off early. Young people can hurt themselves by avoiding debt altogether. Debt, after all, is what lets us invest in education, homes, and even a small business. Avoiding it can hurt our long-term chances for success. But that doesn’t mean we need to carry it around forever. As soon as possible, pay off those costly loans, even student loans if they carry high interest rates.
Look for your parents, too. Parents can be so generous that they end up hurting their own retirement funds. A survey by Ameriprise found that almost one in three baby boomers said that supporting their adult children had a negative impact on their retirement savings. While you probably want to look out for your parents out of love anyway, there’s also a smart financial case for making sure mom and dad don’t go broke: If they do, they’ll likely turn to you for support, just as you turned to them as you were getting started in the working world.
Despite our generation’s rocky start with the economy, we can still find financial security – we just have to work a little harder for it.
For an excerpt for "Generation Earn," click here.
Kimberly Palmer is the author of "GENERATION EARN: The Young Professional’s Guide to Spending, Investing, and Giving Back" (Ten Speed Press, 2010).
You can learn more at www.generationearn.com.