According to several personal finance experts on monetary issues of millennials, there are times when these young adults have to face ‘ifs and buts’ regarding the most apt financial decisions to make. Their dilemma makes the entire decision-making process a lot difficult for them than it is otherwise.
Financial choices millennials should make
Here are some of the financial decisions millennials can make and their implications on their personal life:
- Debt repayment or savings – The straightforward answer to this dilemma would be to have an emergency financial cushion first. After that, everything depends on the circumstance you are in. Basically, paying off compounding interest rate debt would in a way translate into a return on investment from the market.The task of prioritizing your debts over one another will solely be dictated by your present personal financial health, considering that you have got an emergency fund for yourself. This emergency fund should have at least 3 – 6 months’ worth of your living costs.So, personal finance experts suggest that the decision to pay off your debts against investing all those extra cash at hand should depend on the rate of interest charged on the credit versus the possible rate of return from investing in the market.
- 401k or Roth IRA – Probably both, provided there isn’t any strings attached to them. However, in case of a crisis, then opt for the 401(k) first that matches with that of your employer. Essentially, 401k is an employer-sponsored retirement savings option. It allows you to contribute towards it on a pre-tax-basis and grows as a tax-deferred retirement income. However, you’d have to pay taxes once you start withdrawing the funds after retirement.Alternatively, you can open a Roth IRA (Individual Retirement Account) on your own, with the taxed dollars. Whatever income it generates would be considered as tax free, provided you plan to use them for retirement. More, you can withdraw all your original contributions without attracting any penalty or interest.As of 2013, you are permitted to contribute not more than $5,500 to a Roth IRA, considering your adjusted gross income is less than $112,000 as a single person or $178,000 if you are married. However, if your annual income is more than that, then the amount of contributions that you can make would decrease. Furthermore, you can’t make any contribution, if your annual income is above $127,000 as a single person or $188,000 as a couple. Finally, the best thing to do in this regard is to opt for both.
- Buy or rent – As per the popular notion, it is better to opt for rented homes. Still, you should do what is most suitable for you. Actually, there isn’t any one-size-fits-all solution for this. However, do whatever deems fit for you and stay away from replicating what others have done.It may have worked for them, but that doesn’t imply that the same would do in your case. Never give into peer-pressure of buying a home. It was considered as the American dream for the baby boomers and olders, but it isn’t for millennials like you now.Here, being flexible with your choice will what get you better results. Ask yourself, how long am I going to stay put in this area? You’re probably lost at that. So, it is best to keep yourself available to that job offer you’ve yearned for all these years and not to tie yourself to one particular place.
Personal finance experts have opined that the current generation of millennials like you have figured out that homeownership shouldn’t be a part of the American Dream. These financial gurus propagate the need of being flexible while you have a better job and till the time you need it.