Budgeting With the Goal to Save and Invest for Millennials

Budgeting can be an essential tool for financial success. Many personal finance experts suggest creating a budget as the most important component for a successful financial plan. A budget gives you a roadmap of where you are in the moment and for planning for the future. Without a budget, it is much easier to get off track. Let’s take a look at some strategic ways to lower expenses, which allows for budgeting to save and invest.

Cut Back on Large Monthly Expenses

Addressing the largest expenses in your budget first can be an effective strategy to save money over time. Rent or mortgage payments, auto payments, and food tend to be the largest budget items. Below are a few ways to cut down on some of these large expenses:

Rent or Mortgage Expenses

Start by analyzing what you currently pay in rent or mortgage each month. Take that number and divide it by your gross monthly income. If that number exceeds 25% to 33% of your gross monthly income, the consensus is that you could be spending too much on housing. Here are some tips to lower your costs:

• Rent spare bedrooms for extra income on sites such as Airbnb.
• Refinance: You may be able to lower your mortgage if you are currently paying a high-interest rate. Speak with a lender and find out what your options are.
• Consider moving to a smaller place or a more affordable area. Moving may take time if you are in a lease or must sell your house, but is a long-term option to lower your housing expense.

Auto Expenses

Auto expenses tend to be one of the costliest expenses in a budget. The average car payment in America is $550 for new, $393 for used, and $452 for leased vehicles. This payment does not include gas, insurance, or maintenance that the vehicle will need over its lifetime. Lowering this expense can lead to additional money for saving and investing. Below are a few ideas to lower transportation costs:

• Sell your expensive new car for a more affordable, reliable used car.
• Consider having only one vehicle if your situation permits.
• Walk or bike to work, if possible, to save on gas and vehicle maintenance. Public transportation is also an option.
• Buy a fuel-efficient or electric vehicle to save on the additional costs of operating a car.
• Drive with Uber or Lyft to offset your vehicle’s cost or utilize apps such as Turo to rent out your car when you are not using it. These options are great for Millennials looking to earn additional income.

Food Costs

Food is a necessity. However, it is possible to lower your food costs by taking a few steps. Even if you have a family and the food costs add up quickly, here are a few tips to ensure you do not overspend at the grocery store:

• Make a list and stick to it. Do not buy something that is not on your list just because it is on sale.
• Buy in bulk for items that do not perish quickly or used frequently.
• Shop lower-priced food stores.
• Shop products that are in season, especially produce.
• Utilize local farmer’s markets.
• Make a fancy dinner at home instead of going out to an expensive restaurant.

Evaluate Your Insurance Options

Insurance is an essential component of a successful financial plan. If you have a family or are planning on starting a family in the future, this is especially true. Medical expenses can add up quickly, which is why insurance needs to be a key consideration for any age. Here are a few tips to make sure that you are getting the best value with your insurance:

• Utilize a Health Savings Account (HSA) for healthcare costs. These plans can be a viable option for medical-related costs. HSAs offer a triple tax advantage. HSA advantages include tax-free contributions, tax-free growth, and tax-free withdrawals. It is important to note that a high deductible health insurance plan is needed to contribute to an HSA.
• Shop around for insurance and get quotes from multiple insurance companies.
• Consider bundling for more savings. Bundling home, auto, and life insurance could save quite a bit of money instead of getting individual policies with different companies.

Cut Back on Discretionary Spending

Discretionary spending can be characterized as extra expenses after meeting your basic needs. For example, this could include going out to the movies or a nice restaurant on the weekend. Whatever the case, cutting back on some of these expenses means more money to save and invest over time. Below are a few tips to cutting back on those discretionary expenses:

• Instead of going to Starbucks or your favorite coffee shop, make coffee at home.
• Make a nice meal at home instead of going to restaurants.
• Find free events in your local area. Millennials have utilized social media platforms as an excellent way to connect with others and find events in their areas.
• Wait 24 hours before purchasing something unnecessary. Then, if you decide that you want it, be sure that the purchase falls within your budget.

It is important to enjoy your free time and hobbies. However, cutting back on unnecessary costs can lead to more saving and investing over time. Budgeting allows you to spend money on the things that mean the most to you while ensuring your necessary expenses are covered.

BUDGETING TOOLS THAT MILLENNIALS LOVE

Are you struggling with budgeting? Use an app such as Mint, Simplifi, or Dave Ramsey’s Every Dollar. These apps can consolidate your accounts and break down your expenses into categories, making things easier to view. They can also send you alerts when your balance is low, or you have upcoming bills.

If you have any questions regarding your investment options, please contact Midland Trust at (239) 333-1032 or visit www.midlandtrust.com. We would be happy to discuss our services with you and how you could incorporate self-directed IRAs into your investment portfolio.

Read our other budgeting article “Budgeting Made Simple for Millennials” for additional tips.

MIDLAND TRUST IS NOT A FIDUCIARY: Midland’s role as the custodian of self-directed retirement accounts is non-discretionary and administrative in nature. The account holder or authorized representative must direct all investment transactions and choose the account’s investment(s). Midland has no responsibility or involvement in selecting or evaluating any investment. Nothing contained herein shall be construed as investment, legal, tax, or financial advice or as a guarantee, endorsement, or certification of any investments.