Financial planning for millennials: How to set financial goals

Ranging in age from their mid-20s to early-40s, millennials are now saving for their first homes, building businesses and starting families. However, they also face high financial barriers, including rising housing costs and towering student loan debt. Most millennials haven't reached their peak earning years yet, making overcoming these obstacles a comparative challenge.

But there are clear signs of hope, including this generation's idealism. A recent survey by Morning Consult suggests that many millennials will benefit from understanding how to set financial goals—such as creating an emergency fund and moderating their spending—even more than previous generations. And, because of their youth, those who start saving now have plenty of time to build the assets that they'll need later in life.

Compared to their parents or grandparents, millennials—those born between 1981 and 1996—have unique financial habits, goals and hurdles. Many have faced obstacles to balancing their long-term financial responsibilities and needs. Consider student loans: millennial borrowers carry an unprecedented amount of student loan debt—an average of $38,877 in 2020, according to Experian. Studies have also shown that those in this generation are less likely to purchase cars or own homes than previous generations.

Where do they spend their money? Many tend to prioritize experiences over things. Millennials spent 64% more on vacations than the general population in 2020, according to Berkshire Hathaway Travel Protection. They also tend to dine out in restaurants or order takeout more. Millennials spent a slightly higher percentage of their food budget on dining out (37%) versus Generation X (34%) or baby boomers (28%), according to a 2020 report by the Bureau of Labor Statistics.

Millennials as a group have felt the effects of unique financial dynamics, as they have experienced both The Great Recession and the economic fallout of the COVID-19 pandemic during their peak working years. The analysis by Morning Consult found that millennials were more likely to express concern that the money they have or save won't last, and that finances "control" their life. At the same time, research has found that people in this age group are also more willing to improve their credit scores, invest and say they're working on money management goals. For the members of what represents the largest current generation, taking concrete steps to achieve those aims can be vital to reducing stress and achieving long-term financial security.

Creating goals for your finances is a common strategy for more effectively managing money in the long term, but it can be particularly helpful for millennials, who still have time to right the ship if they haven't developed the healthiest habits to date. Because they're still at least two decades away from the traditional retirement age, they can capitalize on compound interest to help them get the most out of what they invest.

If you're a millennial and you're looking for financial clarity, here are some goals to consider working on:

The bedrock of financial health is accountability. Find ways to control your discretionary spending with smart budgeting strategies, like using a dedicated debit card for all your nonessential purchases and reloading it each month with a set amount. You can also use budgeting apps that sync with your banking and credit card accounts, so you can better track where your money is going.

Pay more than the minimum on credit cards and other high-interest rate debt when possible. In 2020, the average millennial carried card balances totaling $4,322, according to Experian. The sooner you eliminate that debt, the sooner you can put your money toward other uses.

No one can predict what medical crisis or layoff is around the corner, so it's always important to be prepared. As a general rule of thumb, you should have at least enough set aside in an emergency fund to cover your expenses for three to six months. However, those without steady employment or with a nonworking partner may want to create a slightly bigger cushion.

The sooner you start investing in long-term goals—like retirement—the less strain you'll put on your budget later in your career. Those who begin putting away 10%-15% of their paychecks in their 20s, including matching contributions, are generally on track. If you get a later start, you'll likely have to increase that percentage to keep up. As you make contributions, keep tabs on how your retirement savings are stacking up to generalized ballpark figures. You can also get an estimate using our retirement income planning calculator.

In addition to taking care of their own needs, many millennials also give back to those in need. A 2020 survey by Zelle showed that millennials were the generation most likely to donate to a charitable organization or loved one in need. If there's an organization or a local group you'd like to support on an ongoing basis, you can set up automatic monthly drafts so those dollars are dedicated and separate from the rest of your spending.

Many millennials are growing their families, buying homes, becoming entrepreneurs and furthering their careers. Consider setting aside a portion of each paycheck for any opportunities that may arise, such as investing in a startup business, accepting a dream job that requires relocation or renovating your house for a new addition to the family. Generally, this money should be saved in a vehicle that provides a reasonable return without putting your principal at undue risk.

Need an expert hand that can guide you in learning how to set financial goals of all sizes? Consider connecting with a local Thrivent financial advisor. They can create a customized financial strategy to help you find your footing and provide you with comfort that you're on the right financial path.