5 things millennials need to know to enjoy financial freedom

Regional Australia Bank recently sat down with Andrew Shakespeare, Director and Strategic Financial Adviser at JSA group to talk about millennials and money management.

Here’s 5 things you need to know about building your wealth to escape the burden of financial stress and prepare to enjoy a greater sense of freedom and prosperity.

1. Set your goals

With everything in life, it's important that we set goals in order to achieve them. We need to make it clear to ourselves that there is a gap between where we are and where we want to be.

In doing this we start to create motivation - because we become aware of our reason to make changes - our why - so that we can achieve the goals we have in mind.

Without a reason to change, we simply won’t change. But once we have that reason, how we prioritise, plan and act changes to align with our new goal.

So when it comes to our financial goals, it's important to think about why we want to escape financial stress and enjoy a greater sense of freedom as Andrew explains:

"It’s easier for people who have a specific goal in mind to see the value in financial planning. So if they want to get out of debt in 10 years or they want to buy a house in the next year and they’re just stuck and they don’t know what the best approach is for achieving that goal - then it makes sense for them to invest in figuring this out and so it’s quite easy for them to see the value in gaining that knowledge and clarity on how to attack things so they can reach their goal.”

2. Get the right structures in place

Living paycheque to paycheque, week to week is a major source of stress for many Australians.

Without the right banking structures and systems in place, Andrew explains that many people quickly run into financial problems like bill shock and rising debt which can affect mental health and both personal and professional life.

"I’ve seen so many people short term bad decisions where they sell their assets because they haven’t had their cash flow or banking structure in order."

In order to overcome this, Andrew says we need to think about our personal finances in terms of profit and loss - just like a well-oiled business:

"Everyone has a profit and loss but they just don’t think about that way... People have their revenue - their salary coming in, their losses are their expenses, home loan repayments, their tax, living costs. Then they have their net profit, after tax, which should just be their left over - their excess."

"That information needs to be accessible so you can identify these things. From there it's about finding that profit and then using that profit regularly and effectively - just like in a well-oiled business"

3. Don't waste the "leftover"

Throughout various points of time in our lives we have an explosion of income - or if we're thinking in terms of profit and loss - periods of time where our profitability suddenly increases.

When we leave school to start working, when we finish our apprenticeship, if we're entering a new career path, when our kids have left daycare, when we've paid off a credit card or personal loan - at these points of time we suddenly have more money coming into our bank accounts - so it's important we leverage this.

"It’s really important that when those times occur... that people identify that this has occurred and not just spend it - that “leftover”” Explains Andrew.

"Again it comes back to good structures underneath and using worksheets and templates to be able to go: “Ok we’ve identified that this is happening - we need to move this ‘leftover’ somewhere else otherwise it will just burn a whole in our pocket if we leave it in our pay account or wherever”"

4. Don't be afraid to ask for help

One of the prominent myths in society is that if we work hard and save hard we'll be able to build our deposit and buy a home and everything will be ok.

But it's not that simple, in many cases people build their deposit and then due to circumstances outside of their control like changes in the property market, they realise they need $10K more than what they've saved in order to purchase their first home.

Andrew says that for first time home buyers who are in a position to ask for help, it's worth considering a guarantee loan.

"I’m often saying to first time home buyers - if they put in place the right building blocks around cash flow and banking structures and they’re proving that they’re financially responsible and they’ve got friends, family, relatives who have assets - they could look at leveraging that to get into the home sooner rather than waiting another 12, 18 months or 2 years and not knowing what will happen to the property market in the meantime.”

5. Know your numbers

Without numbers and graphs, our finances are in abstract terms that make it difficult to plan for and put some structure around.

By knowing what the hard numbers are when it comes to putting a strategy together to achieve your financial goals, it's much easier to remain motivated because it reinforces the reasons we are working towards these goals in concrete terms.

Andrew says that when it comes to buying your first home it's important to keep this in mind:

"I think part of the plan for anyone young is to actually articulate - not just in their own minds - but, if they’re going to have this conversation with their parents - why this will help out, in hard numbers."

"So if they’ve spoken to a bank before and the bank’s said “look, if you have a guarantor to help, you’re going to be able to afford a place for this amount of value, but if you don’t then you’re only going to be able to afford a place with this smaller amount of value.”

Andrew says that even if you're still working out the hard numbers it's a lot easier to start a conversation if you say: “Look, we’ve been putting a lot of thought into this, we just want to broach the idea with you - we’ll come back to you with some numbers if you’re keen - if not, that’s ok, we respect your decision there.”

 

Andrew Shakespeare is an Authorised Representative (number 323781) and Credit Representative (number 366051) of Jeff Shakespeare & Associates Pty Ltd (ABN 27 001 854 397) who is a Corporate Authorised Representative of Matrix Planning Solutions Ltd ABN 45 087 470 200 AFSL & ACL No. 238256.

The views and statements expressed in this article are that of Andrew Shakespeare and not Regional Australia Bank Ltd.

The information provided is general information only and the information has been prepared without taking into account any particular person’s objectives, financial situation or needs. Before acting on such information, you should consider the appropriateness of the information having regard to your personal objectives, financial situation or needs.