Growing up during the last major recession means that today’s millennial college entrepreneurs are already in the savings mindset. They’ve learned how to live with less than previous generations, which has made them much more conscious of how much things cost. Unlike other generations, they’re looking to offset the cost of things like tuition, housing, food, entertainment, and healthcare expenses.
Knowing where they are going and what they want means that millennials are also empowered to say no to paying too much or relying on credit too often. That’s why this new breed of young entrepreneurs is constantly on the lookout for money-saving tips.
Growing up with technology has also enabled these entrepreneurs to do price comparisons online and access deals and discounts for everything from appetizers to phone cases.
However, there may be some unfamiliar money-saving tips that can help millennials. The millennial wants to save money in areas that aren’t essential to launching their burgeoning startups but can further their frugal ways.
Separate Your Business and Personal Expenses
As a startup owner, especially while you are at college, may be challenging to determine what a business expense is and what a personal one is. It becomes particularly sticky given the fact that you might be running your new business from your dorm or apartment.
However, it’s important to keep good records that separate these expenses and account for them in distinct ways. For tax purposes, keeping good records can deliver additional savings in the form of deductions while lowering your risk of being audited.
Software like QuickBooks allows you and helps you to set up separate records for your business and personal accounts. QuickBooks can also be set-up to track the “what if” category. The What-if category is, “what if a portion of my dorm room can apply to tax credit?” These are the money spending categories you’ll check on when tax time comes. Boom! You track it, you’ll know what questions to ask and it helps you understand how to separate and track various types of expenses.
Because you’re always on the go, it also helps to use an expense-tracking app like Expensify. This app manages every type of expense you have, makes it easy to divide up expenses, and even integrates with QuickBooks.
Reduce Expenses through Comparison Shopping
As a millennial you already do online comparisons. Would you eat at a restaurant without checking on yelp or some other verification site? Probably not. Go to a movie without reviewing? Never. For a movie, you check the review; the movie has your 5 star rating. Next steps, you click over and get the ticket — hop on maps if you haven’t been to this venue (which you also checked out) and you’re outta here.
You may not have realized how savvy you are to the many ways you can undertake cost-cutting and tracking exercises. As millennials you are connected in such a way as to get the word out online where the savings can be found in any business sector. Use this same process for your dorm room entrepreneur system.
Your search now includes ways to reduce utilities, internet, TV services, and more that previously seemed impossibly challenging. Many of these service providers didn’t have competition before, so you were locked into paying what they felt like charging.
With the advent of cable-cutting companies, you can now negotiate. You can also seek out comparison shopping websites designed to save you a bundle with convenient connections to reduced internet services. There are numerous deals out there, and having a platform like this can help you locate and leverage them quickly. Like that movie. Boom, 60 seconds, not hours.
Establish Credit to Build a Good Score
Your business may need to tap into funding to grow and expand. Investors may not be as interested in you, or you may not need much in the way of capital. This is where credit can help, even if you’ve previously avoided it. Some use of credit can not only provide necessary capital, but it also offers a way to establish the credit score you need to get access to more credit later on.
When it comes to accessing business credit, both your business and personal credit scores are checked. With little to no experience with credit, it’s important to educate yourself before making any decisions about what kinds of credit to apply for and how to use it. After all, you don’t want to do anything that ruins this%2
When I got my first paycheck after college, I was so excited about all the stuff I could finally afford to buy. I was living at home with my parents at the time, so my expenses were low and my shopping wish list was long. Then my dad asked me if I had set up my 401(k), or thought about other investment accounts like an IRA or a brokerage fund.
My head began to spin: I barely made enough money after taxes and paying for insurance to save up to move out. Now I was supposed to put more of my income into an account I couldn't touch? And even risk losing some of it in the stock market?
Now, I understand how important (and smart!) it is to start investing for long-term goals like retirement from your first payday. That's because of compound interest—when your interest earns interest, a hundred dollars can grow into thousands over time. So if you put $5,000 in an account with an interest rate of seven percent and contribute $200 a month, after 30 years you'll have a little over $280,000.
If you're not already investing, now's the time to begin! Here are four steps to getting started:
1. Know why you’re investing
Are you looking to start saving for retirement, or grow a nest egg to buy a house down the road? The answer to this question will help determine what account to open. If you're thinking about retirement (my advice: always think about retirement), you should open a 401(k) and IRA. A 401(k) is set up by your employer and pre-tax, meaning you won't be taxed on this money until you withdraw it. Some companies even match your contributions.
A traditional IRA is also tax-deferred, but you don't need an employer to set up this account for you. If you earn less than $118,000 individually, or $186,000 as a married couple filing jointly, you can open a Roth IRA. Unlike a traditional IRA, this account taxes the money you contribute, but when you withdraw it for retirement, what you see in your account is what you get. The caveat: You can only invest $5,500 a year. Since these accounts are created for retirement savings, you'll face a fine if you withdraw money before you're 59 years old.
If you're already investing for retirement and looking to grow your money for a short-term goal, something you want in a few years, like buying a house or travel, consider opening a brokerage account. This is an investment you can access at any time. You can work with a broker to help you invest, or take a DIY approach to make some investments on your own.
2. Decide what to invest in
No matter what account you choose to open, you'll need to know how to actually invest your money. First, consider how involved you want to be in your investments. Look at investments like a restaurant menu: If you like to create your own meal and order à la carte, then invest in individual stocks. The key is to buy low and sell high, but once you invest in a stock, give it time to grow and dip over a few years. Not every IPO will reach Amazon heights.
An index fund is more like the chef's tasting menu. If you're not sure which individual stocks to invest in, an index fund offers a cross section of a specific part of the market, like the S&P 500. This fund gives you a taste of 500 of America's largest stocks. "Instead of buying each of these stocks individually, you can use a brokerage firm to invest in an index fund," financial guide Nicole Lapin tells Redbook. "Buying a share of an index fund gives you exposure to a sector of the market."
Some index funds are mutual funds, which are operated by money managers, who shuffle assets to try for the biggest profits, Lapin says. Others are exchange-traded funds (ETFs) that can be D.I.Y. and traded like stocks.
3. Diversify your portfolio
Savvy investors know this step is key. A diverse portfolio is an investment account with money spread out between various stocks, funds, and bonds. This way you don't have all your eggs (read: money) in one basket. Think about it: If all of your money is invested in Tesla and its stock crashes right when you need to cash out, you can kiss your retirement savings goodbye. But if you have money in various funds and one of these investments fail, the others act as safeguards. You might not have as much money as you'd have hoped for, but something is far better than nothing.
4. Manage your Accounts
The final thing to consider is what firm you want to invest with. If you go the traditional route, investing with a firm like Vanguard or Fidelity, you'll need around $3,000 to open an account. These firms let you buy, sell, and monitor your investments on your own or connect you with an advisor who can set up your accounts for you. If you want to start smaller, online firms like Wealthfront and Betterment have low or no minimum investment. These firms use algorithms to help you allocate your investments so you make the most money.
Want to start even smaller? Sign up for Acorns, an app that lets you invest your spare change. You connect your credit card, and after every purchase Acorns rounds up to the nearest dollar and invests the difference into recommended stocks and bonds. If you're still hesitant to start investing, financial planners and brokers can help you navigate your investment options for a fee. Just make sure yours is registered through the National Association of Personal Financial Advisors or the Financial Industry Regulatory Authority's Broker Check database.
Now that I'm investing, I track all of my accounts with Mint, and I really do see my money grow from year to year. It's important to monitor your investments—I check mine once a month to make sure I'm still happy with the ETFs I chose—but don't drive yourself crazy if a stock or fund has a bad day. Remember: You're in this for the long-term gain, not quick cash.
The term “independent financial adviser” was originally used to describe advisers who work independently for their clients rather than representing an investment, insurance or banking company.
According to Cerulli Associates, the independent financial adviser sector is the fastest-growing segment in the financial services market, having grown assets in 2015 by 6.2 percent versus Wall Street firms, which shrunk by 1.9 percent in asset value.
Many of the most-successful investment professionals have come to realize the value of independence – both for themselves and their clients – and want to provide unbiased and independent advice.
The following are some aspects that pertain to most independent advisers:
Independent advisers are not tied to proprietary funds or investment products. They have the freedom to choose from a wide range of investment products and services and to customize their solutions according to each client’s needs.
This freedom does not allow for a cookie-cutter approach, requiring an adviser to better understand each client’s unique circumstances. This ensures that they are properly aligning with their clients’ best interests.
Independent advisers tend to have the experience and dedication necessary to build a successful and self-directed practice. They often transition away from brokerage houses and private banks to better concentrate their acquired skills and provide local decision-making on behalf of their clients. This new-found autonomy allows them to avoid the distractions of ever-changing corporate mandates to more closely align their day-to-day operations with their clients’ needs.
As entrepreneurial business owners, independent advisers can only hold themselves personally accountable for successes and failures. They do not receive a salary and/or bonus from a company, so they have a direct duty of loyalty to their clients. The long-term viability of their businesses keeps them focused on building long term relationships.
Independent advisers tend to value the pursuit of client goals over product quotas and sales goals. As such, they typically operate on a fee-based compensation model, which is simple, transparent and incentivizes safely growing a client’s assets.
A fee-based model does not encourage an adviser to trade, unless doing so would benefit the client. It does not reward the adviser for choosing one investment over another. It simply rewards advisers who grow assets and penalizes those that don’t. When the client does well, so does the adviser’s business.
Fee-based advice requires an adviser to act in a fiduciary capacity under the Investment Advisers Act of 1940. This act requires advisers to operate under a different and higher standard of responsibility than any other financial adviser. They are legally obligated to act in their clients’ best interests, even if that runs counter to the firm’s own interests. According to PBS Frontline article of April 2013, only 15 percent of financial advisers were fiduciaries.
Independent advisers rely on third party-custodians, such as Fidelity, LPL Financial, Schwab and others, to safeguard and report on the status of clients’ assets. By placing your assets with an independent third-party custodian, you create a firewall between your adviser and your money.
A custodian acts as a gatekeeper and watchdog for your account, allowing the adviser – by your consent – to only manage and make trades on your behalf. The adviser cannot withdraw or transfer funds to an outside account without client authorization.
For many investors, this provides a reassuring system of checks and balances. Although nothing can provide 100 percent protection from fraud, working with an independent custodian and an independent adviser acting in a fiduciary capacity can greatly reduce your risk.
Donavan Group offers personalized solutions which include client-directed service options and comprehensive company-directed alternatives to allow you the freedom to create a bespoke investment and service program that satisfies your circumstances while attaining your financial objectives.