There seems to be a stigma regarding younger people when it comes to money. Most people think that millennials are notorious for either poorly managing their money or just ignoring it all together. However, here at DriveWealth we know that is not the truth. In fact, the fact that you are reading this article proves the former assumption wrong. Further, by continuing to explore the ways money works — and understanding how you can make it work for you — you will undoubtedly be proving those assumptions wrong as well; likely you already are! So, in the spirit of gaining knowledge about how money works, here are a few things about money that you should consider while you are still young.
Having an Emergency Fund Can Really Save You: Just like the price of a stock, life can sometimes be unpredictable. However, by being proactive you can help to protect yourself financially. Surprisingly, even though you might think being proactive is common sense, a 2015 study by Bankrate.com found that only 38% of Americans have enough money in their savings accounts to pay off expenses that they are not expecting. To provide some clarity, these expenses could be things such as unexpected trips to the emergency room, car repairs, or considerable home damage. Essentially, many Americans live one job loss away from being in serious debt that could affect them for years. To avoid this, think about leaving yourself a cushion by both investing and saving money. For instance, many experts suggest saving enough money to cover roughly three to six months’ worth of living expenses, just in case something happens.
Purchasing a House is Not Automatically an Investment: It is likely that you have heard how investing in real estate can be low in risk, but high in return. Although that is true, it is important to understand the difference between buying a house to live in and purchasing a property to rent out for profit. It is true that a well taken care of home in an attractive neighborhood can increase in value over time. However, without living in the house for an extended period — such as multiple years —the transaction costs associated with buying and selling would likely minimalize your financial gains. Additionally, some professionals warn that many homes will not appreciate quickly enough to beat inflation by a considerable amount. Consequently, it might not be wise to assume that your home will be an extremely profitable investment unless you are willing to rent out part of it to generate income.
As a responsible young investor, you probably know that there are a lot of different things you should consider in order to continue setting yourself up for the future. While these three tips might be helpful, it is important to remember that you should do your own independent research and make the financial decisions that you believe are the best for you. Your own financial situation is not exactly the same as anybody else’s, so by understanding your options and choosing the best ones, there is no reason that you can’t achieve your financial goals!