Broke Millennial: Stop Scraping By and Get Your Financial Life Together (Broke Millennial Series)

by Erin Lowry

Your parents likely did the best they could for you and your family with the information available to them and their own psychological relationship with money.

“Money isn’t stressful as long as you don’t spend too much.”

An emergency fund is like creating your own insurance policy against disaster by saving up easily accessible money, which means you should put those funds in a basic savings account so you don’t have to sell stocks to get at your money.

(Total Assets) – (Total Liabilities) = Net Worth

Make one or two small purchases on your credit card each month to keep your utilization ratio low (extra gold stars if you keep it below 10 percent). Sure, you can make more purchases if you want, but one or two small ones are enough to ensure that you use the credit limit but don’t overspend. Pay off all your bills on time and in full. Rinse and repeat.

A credit card is a good financial tool only if you pay it off on time and in full every month. Never carry a balance month to month.

Carrying a balance on your credit card is a waste of money and an easy way to slide into a debt trap that feels impossible to overcome.

Saving money prevents you from sinking deeper into debt by providing a buffer when you hit a streak of bad luck and everything you own suddenly breaks.

“The stock market is cyclical, so if you just leave a well-balanced portfolio alone, it will come back around.”

Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it. —Albert Einstein (probably)

There is always risk associated with investing, but there’s also risk in just letting your money sit in a savings account losing purchasing power for decades thanks to an old foe known as inflation. Investing gives you the opportunity to examine asset allocation and rebalance from an aggressive to moderate to conservative portfolio over the course of your life.

“If investing feels like gambling, you’re doing it wrong. Yes, day trading can very much be a gamble, and some people enjoy that. However, ‘buy and hold’ investing is a whole different animal. It’s based on long-term returns, not day-to-day fluctuations,”

Spending less and saving more are two key pillars on the path to wealth, but they’re pretty pointless without investing.

You don’t have to be bringing home a six-figure salary to start investing, nor do you need a lot of technical knowledge. If you set up a retirement plan at work or contribute to a Roth IRA because you heard that’s a good idea, then you’ve already started investing.*

Index fund: A type of mutual fund that allows you to buy shares to match a specific stock market index. The Standard & Poor’s 500—commonly referred to as the S&P 500—and the Total Stock Market Index Fund are two common examples of index funds. These are passively managed, so you avoid some of the fees associated with actively managed mutual funds. If you buy $100 worth of an S&P 500 index fund and Apple stock makes up 3 percent of that index, $3 of your $100 goes toward Apple stock.

Don’t panic and sell when the market takes a tumble. That’s actually a decent time to put some more money into your index funds because it’s like everything just went on sale.