Ah, Millennials…can they ever do right for doing wrong?
Those 25-34 year old Gen Y’ers – fast becoming known as the ‘Avocado Toast Generation’ – get a hard rap for frivolously spending money for instant gratification. Picture expensive coffee, electronic gadgets, clothes, and restaurant meals…not to mention that smashed avo on toast delivered right to their door. Thanks, Uber Eats.
But they’re also increasingly referred to as the ‘Entrepreneur Generation’, having already launched twice as many businesses as boomers did in their lifetime. In spurning the traditional nine-to-five job in favour of independent contracts and freelance jobs, they’re driving the gig economy with side hustles such as vlogging, dropshipping, and Etsy stores, as well as income streams from Patreon or crowdfunding.
In fact, studies have shown 44% of millennials have a side gig to supplement their income.
With the cost of living on the rise – and showing no signs of slowing down any time soon – this should come as little surprise. That’s why it’s important savvy millennial entrepreneurs keep their personal finances in good shape, just as they do for their business.
Budgeting and planning
The first step to managing personal finances is budgeting. Entrepreneurs inevitably face irregular income, so it’s important to budget personal finances around that uncertainty to make sure there are savings set aside to cover basic living expenses. Calculate essential costs like mortgage or rent payments, utilities, insurance, and food and put aside enough to cover leaner months.
Research shows millennials don’t pay their bills on time. Only a third make all their loan payments on time each month, while only a third pay their credit card in full. Set up automatic payments for personal bills so they’re not forgotten during the long hours and hectic times of building your business.
Millennials are quick to embrace digital technologies, including financial management tasks on their mobile devices. On the upside this means they interact with their financial institution online regularly – nearly three times more than Gen X and Boomers – so they’re actively current with their finances.
Keeping business and personal accounts separate is crucial for business owners. Being organised with accounts by keeping good records and hanging onto receipts makes it easier when it comes to tax-time and managing bills and other payments.
Getting advice
Unlike previous generations, Gen Y can turn to a range of online sources that offer money management advice when they need financial information. Apps are making it easier than ever to track budgets and spending. Countless experts are taking to mics to record podcasts offering on-the-go advice to busy millennials.
All while Banks and Credit Unions across New Zealand – and the world – such as Barclays, Horizon and NZCU Baywide follow the lead of hobbyist-writers in launching blogs full of go-to money making, spending, and saving advice.
Entrepreneurs, however, have complex financial needs requiring individualised advice from professional financial advisors, accountants and lawyers to ensure the right arrangements are in place; including various insurances, a personal will, savings and investments and debt management, for both you and your business.
Employees with second jobs need to aware of their tax obligations on their extra income. A tax agent or accountant can advise you how to offset business expenses against business income to help reduce tax and if you’re working from home how you can claim a portion of your household expenses.
The best advisors provide personal advice and make entrepreneurs accountable for their spending and long term plans.
Planning for the future
One of the most important aspects of any savings plan is to look ahead to retirement. Even though a variable income is often a symptom of the millennial lifestyle, you can – and should – still aim to contribute to KiwiSaver.
KiwiSaver offers a flexible retirement saving option for the self-employed, because you’re not required to contribute a set percentage of your pay. Instead you can agree your contribution level with your KiwiSaver provider and pay in either lump sum payments or regular payments.
Entrepreneur millennials should have diversification at top of mind. Build diversified, long-term investment portfolios that grow separately from the business. Aim to create both a successful business and a stable source of income to use when choosing to retire from your business.
Personal financial planning should be about ensuring you can align your ideal life and your wealth goals.
Deal to debt
Reducing debt should be a priority for millennial entrepreneurs, regardless of whether the debt is associated with personal expenses or from launching and operating a business.
Understanding the difference between good debt and bad debt and ways to manage debt are the first steps.
Paying off debt comes down to creating and sticking to a plan. Strategies should include minimising expenses and building cash reserves for emergencies or for when slow periods reduce business income.
With the right personal financial plans in place, the millennial entrepreneur can enjoy business success – and avocado on toast!
