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The more than 75 million young adults that make up the millennial generation had a lot against them as they entered adulthood. The largest and most diverse generational cohort came of age during the financial crisis. They pursued higher education at a higher rate than the two generations before them despite skyrocketing education costs, and many older millennials faced a tough job market upon graduation.
The financial crisis coincided with a boom in college and graduate school attendance. This wasn’t much of a surprise, considering education has always been considered a reliable way to increase wealth. However, a recent study by the Young Invincibles found that despite being the most college-educated generation in history, the average millennial’s net worth is still half of what the average baby boomer’s net worth was at the same age.
To explain why, the Young Invincibles looked at how an increase in student loan debt and average wages has worked against college graduates. According to the results of the study, millennials are not just being held back by student loan debt — about $27,000 on average — but they are also earning an average of 20% less than boomers earned at the same age.
Why all the concern over millennials’ net worth? We’ll explain why your net worth matters and what you can do it increase it.
What Is Net Worth?
Your net worth is fairly simple to determine. It’s what you have left over after adding up the assets you own and the debt and other financial liabilities you have as well.
In short, it’s how much you own versus how much you owe.
Your assets are a combination of the cash you have in the bank, investable assets like your 401(k) or investments in the stock market, and the current value of your home and your car.
Your liabilities are your debts. That’s essentially everything that pops up on your credit report like credit card debt, student loan debt, auto loan or mortgage (yes, equity you have built in your home is an asset, but the mortgage you took out to buy the home is a financial liability).
Calculate your net worth by subtracting your total liabilities from your total assets.
For example, you could be a doctor earning $300,000 a year, with $80,000 in savings and $100,000 in your retirement account, but if you have a mortgage worth $400,000, $130,000 in student loans to pay off, and $10,000 in credit card debt, you would have a negative net worth. ($180,000 - $540,000 = -$360,000)
How to Increase Your Net Worth
Hate to break it to you, but outside of receiving a large unexpected inheritance, there is no quick fix to growing your net worth.
However, as a millennial, time is on your side.
“Building up your financial situation takes time, a good plan, and a lot of persistence,” says Peter J. Creedon, a certified financial planner at Crystal Brook Advisors in Mt. Sinai, N.Y. “Life is about choices, and good behaviors take time to form and discipline to adhere to.”
Follow these six tips to grow your net worth:
1. Work with What You Have
So, you’re saddled with student loan debt and earning 20% less than your parents’ generation, but you’re determined to grow your net worth. It may be time to make like Beyonce and turn lemons into lemonade.
“Millennials can't change their college debt situation and may not be able to increase the wages from their full-time job,” says David J. Haas of Cereus Financial in Franklin Lakes, N.J. “So the important thing is careful money management to make the most of what they do have.”
Practicing a daily budget is an excellent first step toward increasing your net worth. If you can master the practice of spending less than you earn each day, then each week, each month, and eventually each year, you’re on your way to a higher net worth.
If you’re not into calculators and spreadsheets, there’s good news: It’s never been easier to use technology to do the hard work for you.
By automatically scheduling savings to disperse to different goals such as an emergency fund or retirement savings, “millennials can train themselves to live on less while building their net worth a little bit at a time,” says Daniel Andrews, a financial adviser at Well-Rounded Success in Greenwood VIllage, Colo.
2. Look for a job with growth potential
If you went to college and took on student debt like many millennials, chances are high that your net worth will be in the red. If that’s the case, you should focus on creating a plan to earn more and owe less over time says Allison Vanaski, a financial planner with Arcadia Wealth Management in Smithtown, N.Y.
“You shouldn’t be worried if you are young and have a negative net worth, but you should be worried if you don’t have a plan [to grow your net worth over time],” Vanaski says.
By focusing on increasing your earnings over time, you’ll have more cash on hand to pay down your debts and build up your cash reserves. All the while, you’re laying groundwork for a higher net worth.
Ask yourself if you’re in a position with room for growth or increased income because that is a surefire way to increase your net worth. If you’re not, it could be time to look for a job with more opportunity for growth.
3. Take Advantage of Your Employer Benefits
One of the easiest things you can do to increase your net worth is to maximize employer benefits like a 401(k) match, flexible spending account, or health savings account.
Roger Ma is a New York-based financial planner at Life Laid Out. He says to maximize your retirement contributions to fully take advantage of any 401(k) match you get from your employer. This is like getting a guaranteed return on your retirement investments — for free.
To put this in practice, imagine your employer matches 50% of what you contribute to retirement up to 5%. At the very least, you should set aside 5% of each paycheck for your 401(k) to capture the full match.
Flexible spending or health savings accounts can seem intimidating to figure out, but they are a great way to save on health care expenses. Health care is only getting more expensive each year, and it can quickly eat away at your budget. When you put money into an FSA or HSA, you’re doing so with pre-tax dollars, giving you extra money for those costs.
Even little perks like commuter benefits can add up over time. Those accounts allow you to use pre-tax dollars to pay for transportation costs.
4. Get a Side Hustle
You might find an excellent job with great upward mobility but still not feel like you’re earning quite enough to be able to pay down your debts. Leaving your job may not be the answer if you feel you have potential to grow and earn more there. Instead, look for ways to capitalize on a talent or skill to bring in additional income.
“The job market is getting better right now. Don't be afraid to look around to see if you can find a better job which pays more, or think about picking up a little extra money by participating in the gig economy,” says Haas.
Technology has significantly lowered the barrier to entry for many gig-type jobs. Making extra cash on a Saturday by driving for Uber, soliciting your talents on Fiverr, or helping someone get work done via TaskRabbit weren’t options for Gen-Xers. Today, almost anyone with an internet connection can make extra cash relatively easily. An added advantage for millennials is that you can use these tasks to develop job skills to increase your human capital and increase your earning potential.
5. Save Up While You Pay Down Debts
There are some things you shouldn't do at the same time — like texting and driving — but you should definitely work on your savings and debts at the same time.
Saving while you have so much debt to pay off can feel like an impossible ask. But it’s important to prioritize savings just as much as paying down debt. Without cash reserves on the side, you’re more likely to take on more debt when unexpected expenses pop up over time (and trust us — they always do). An early savings goal should be to save at least three months of monthly expenses. Accomplish that while you make minimum payments on your other debts. Once you’ve reached that goal, you can save a little bit less and put a little bit more toward your debts.
Doing both also gets you into the habit of saving, so that once your debts are all paid down, you have already built a good habit. At that point you should start to think of how much you want to increase your savings rate instead of just getting your saving started says Vanaski.
“Saving 20% of your earnings would be a great target, but even if you can only save 5%, start there and increase it by a percentage every year,” Haas says.
6. Don’t Be Afraid to Invest
Once you've been able to save money for emergencies, you can begin to focus on saving for long-term goals. The best way to achieve long-term goals like retirement is to get into the market and invest. We get it — the stock market can be intimidating, especially for a generation that came of age during one of the worst financial crises in history.
According to a 2016 Bankrate study, only one-third of millennials own stock, while about 51% of Gen X-ers and 48% of baby boomers invest in the market.
Investing doesn’t have to be rocket science, and you don’t have to (and honestly, you probably shouldn’t) get into buying and selling individual stocks.
By simply setting aside 5%-10% of your paycheck in a 401(k) or IRA, you’re investing in the market. Many employer retirement plans have advisers on hand to help you pick your investments.
The important thing is to start as soon as possible, as early as possible. Time is a huge asset when it comes to investing since your earnings will have more time to grow and compound for decades.
If you’re stuck between paying down debt and investing, that’s understandable. If you have high-interest debt, like a credit card, with an APR over 8%, then you should absolutely focus on paying that debt down first and aggressively.
For more information on investing, check out these posts:
5 Things Millionaires Understand About Investing
It’s also important not to mistake making large purchases as increasing your net worth. Like we mentioned earlier, a home can be considered an asset but ONLY if the home becomes worth more than the loan you borrowed to pay for it. This is why the housing crisis of 2008 was so devastating to so many homeowners — suddenly, their homes were worth significantly less than they paid for them or could sell them for on the market.
7. Invest in Your Human Capital
Increasing your income can help you increase your net worth just a bit faster. A possible way to do that is to invest in your human capital: the skills, knowledge, and experience that you have that adds value to your worth.
Constantly develop skills related to your field or a field in which you may be interested in entering. You can use a wealth of online resources to develop your skills in various areas, such as web development, podcast editing, or management, with sites like Lynda.com or with learning courses on Linkedin. You may even consider pursuing a higher degree if the long-term benefit will outweigh the cost of education.