Millennials have been called a lot of things — entitled, lazy, and special little snowflakes — and now, there’s a new pejorative to add to the list. They’re also debtors. According to a new study, roughly 45 percent of millennials owe more on their credit cards than they have in an emergency fund — more than any other generation. In other words, they rely on credit as emergency savings, piling on more debt to handle an unexpected expense.
While having a line of credit can be a smart financial move, it’s best when it plays second fiddle to the emergency fund. Credit is there to provide a backup in case your emergency fund fails in the face of the next emergency.
Knowing this about a line of credit, you don’t have to be a millennial to connect some dots. If nearly half of a generation is using their credit cards and lines of credit first, their emergency fund has been empty for some time.
So, what can you do to boost your savings and make it a formidable first line of defence against the unexpected? Check out these tips for managing your line of credit, budget, and emergency fund for ideas.
Choose a Debt Payment Plan
You won’t get very far building your emergency fund while you’re still paying back your debt through minimum payments. These monthly payments keep you in debt longer, so your budget has less room for savings.
If you didn’t have to pay these bills, you would have a lot more to sock away in your emergency fund.
The financial world is split between two major debt payment styles. The first focuses on paying down your smallest outstanding balance first before methodically moving up to the larger ones. The second involves paying down the account with the highest interest rate first before working your way down the list.
Build a Budget
By creating your budget, you’ll be able to see what bad habits are holding you back financially. You’ll also know the exact limits of your spending powers, so you know just how much you have to work with to make ends meet.
Eliminate Your Bad Habits
Pay attention to the unnecessary expenses in your previous spending. If you can manage to significantly reduce these expenses, you’ll free up more cash to put into savings each month.
While every budget is different, most millennials share the same bad spending habits below:
- Monthly streaming services and subscriptions
- Takeout, delivery, and eating out
- Concerts and theatre tickets
- Online shopping for clothes, household items, and decorations
- Gaming and entertainment
Save on the Essentials
The 50/30/20 Budget suggests you should only spend around 50% of your take-home pay on housing costs, groceries, and insurances. If you’re above and beyond this threshold, consider these tips for reducing your essential costs:
- Use coupons and cashback apps whenever you need to make a purchase.
- Meal plan around cheap ingredients on sale.
- Reduce how often you eat meat and dairy, two grocery items hit hardest by inflation.
- Limit your energy consumption in the home.
- Carpool and walk as much as possible.
- Consider what you have to do to move to a cheaper neighbourhood.
- Negotiate with your creditors to reduce what you pay for Internet, phone, and insurance.
A line of credit can be instrumental when you’re facing an emergency, but savings should always be the first way you handle the unexpected. Keep these tips in mind — whether you’re a millennial, Zoomer, or Gen X. Anyone can benefit from good money management.