Money Management

Millennials are struggling financially compared to boomers. Find out why, and what challenges are holding them back. [[{“value”:”

If you’re a millennial, you’ve likely heard your boomer parents (or even silent generation grandparents) tell stories about how they bought a house in their 20s, paid off their education, and still had enough left over in their checking account to vacation, send the kids to college, and even buy a second home.

Meanwhile, you’re just hoping your landlord doesn’t raise the rent again this year. It’s not that we’re bad with money — it’s that we’re playing a whole different economic game.

Let me give you some context. My grandparents, part of the silent generation, owned a home, put two kids through college, took vacations, saved for a comfortable retirement, bought a beach house, and left money to their grandchildren. My grandfather was a dentist, and my grandmother was a speech pathologist.

Then, my parents, part of the baby boomer generation, bought a home in their 20s, put three kids through college, went on vacations, and bought a second beach house by age 40. My dad was a doctor, and my mom was a stay-at-home mom. They weren’t struggling.

Now? As a millennial, despite making what seems like decent salaries, it feels as if we’re constantly battling to keep up with our personal finances and not run afoul of our budgets. Why? Let’s dive in.

Salaries are lower

Here’s the hard truth: millennials earn 20% less than baby boomers at the same stage of life. Specifically, median earnings for people aged 18 to 34 are lower than they were in the 1980s.

And let’s not forget the ripple effects of the Great Recession, which threw many millennials into precarious contract and freelance positions with inconsistent hours and pay. So, while we’re hustling, our paychecks aren’t nearly as reliable as those of previous generations.

As if that wasn’t bad enough, Gen Z’s dollars today have 86% less purchasing power than baby boomers’ dollars when they were in their 20s.

The cost of living is higher

Now, let’s talk about the elephant in the room: the cost of living. It’s no secret that housing prices have skyrocketed. Millennials and Gen Zers pay nearly 100% more on average for their homes than baby boomers. The median home price in 2022 was $370,600, compared to $185,600 (adjusted for inflation) in 1970. That’s nearly double!

Why the massive jump? Partly because of the rising Consumer Price Index (CPI), but there’s another factor — baby boomers aren’t selling their homes at the same rate, creating a supply issue driving up prices. So, even though Gen Z and millennials want to buy homes (it’s not that we’re all about renting forever), the market is tougher than ever.

For those of us still renting, things aren’t much better. The median rent is up 150% since 1970. This means millennials are stuck in a vicious cycle. Paying high rent makes it harder to save for a down payment on a home, and while housing prices briefly dipped during the Great Recession, rent didn’t budge.

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Tuition costs are higher

Oh, and don’t forget the cost of education. My mom always tells me she was able to put herself through college as a waitress. Millennials, however, are looking at an entirely different scenario. With over $1.7 trillion in educational debt across the country as of 2022, it feels like we’re shouldering a financial burden that just won’t go away.

The cost of college has outpaced income growth by a long shot. Since the 1970s, public school tuition costs have increased by 310%, and private school tuition has jumped by 245%. In the 1970s, one year of public college tuition cost an average of $2,768. Today? It’s $11,360. That’s a massive difference and a major reason why so many millennials are trapped in a cycle of debt before they even get their first job.

Basic costs are higher

It’s not just housing and education that have become more expensive — everything costs more. Millennials and Gen Zers are paying 57% more per gallon of gas than baby boomers did in their 20s. Groceries? Same story. Wages, on the other hand, haven’t kept up with inflation.

In 1970, the typical American income was $24,600 per year (adjusted for inflation), but the average consumer price index (CPI) was a low 38.8. Wages rose steadily over the next 30 years, reaching $38,700 in 2000 — a 57% increase. But now? Wages have stagnated, while the cost of everything from avocado toast to auto insurance has exploded.

What millennials can do

The reality is that millennials are navigating a financial landscape that’s vastly different from what boomers experienced. But that doesn’t mean all hope is lost. Here are some ways to cope:

Automate your savings and investments: Set up automatic bank transfers to save and invest consistently, even if it’s a small amount.Maximize employer benefits: Contribute to employer-matched retirement plans to build your future savings.Consider a side hustle: Leverage your skills for extra income outside your primary job.Prioritize debt repayment: Focus on paying off high-interest debt first to reduce financial strain.Refinance debt: Explore refinancing options to lower monthly payments or interest rates.Seek affordable housing: Consider buying in up-and-coming areas or negotiate rent to reduce long-term costs.Adapt to the economy: Stay flexible with your financial strategy to navigate the changing economic landscape.

It’s not that millennials aren’t working hard; the economic landscape has dramatically shifted. We’re earning less, paying more, and often working in jobs that don’t provide the stability our parents enjoyed. Between skyrocketing housing costs, the cost of higher education, and the ever-rising cost of living, it’s no wonder millennials are feeling the pinch.

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One of the most important parts of small business planning? How to eventually step away. Find out how here. [[{“value”:”

Being self-employed is hard, especially as a freelancer. Between managing clients, preparing deliverables, and wrangling accounting tasks, it can be easy to let saving for retirement slip through the cracks. However, among the hundreds of other little tasks needed to run a business successfully, planning your retirement is an important one. Here’s how to do it.

Building saving into your business plan

As a freelancer, it can be hard to predict short-term cash flows. Incoming contracts, outstanding invoices, and unexpected expenses all add up to sporadic inflows and outflows. While ordinary employees can count on a steady paycheck, freelancers don’t have that luxury — and their savings often pay for it.

One way to build a savings habit as a freelancer is to “backdate” contributions to your retirement account. Each month, treat your retirement savings goal, say $500 at the beginning of April, as an expense, but keep those funds in your bank account until the following month. In May, once you know that April was a cash-flow positive month, transfer those April savings to your retirement account and start again.

For freelancers with fewer, but higher-paying projects throughout the year, consider making proportional contributions based on your cash inflows. Set a savings target, then calculate your goal as a percentage of your gross income, say 5% to save $5,000 on $100,000 of gross income. When cash flow does come in, no matter how large or how small, make a retirement contribution of that percentage to slowly get to your goal throughout the year.

Saving options for the self-employed

Freelancers, on the other hand, bear the brunt of setting up a retirement plan before they can start saving in it. That means evaluating different accounts, registering with a broker, and often creating a written plan document. All that before they can put a dime into their account.

One savings vehicle for freelancers is built on the chassis of the familiar individual retirement account, or IRA. SEP IRAs allow the freelancer’s business to contribute up to $69,000, or 25% of the worker’s income, to the account in 2024. These plans are relatively easy to create and maintain, with an IRA underlying the plan for each worker, even if they are a solo freelancer.

Another familiar option for savers is a single-member or Solo 401(k) plan. The only difference between this plan and a traditional 401(k) is that the owner is the only participant, relieving much of the plan’s administration. With this retirement plan, a freelancer or other small business owner contributes as both the employee and the employer, subject to contribution limits and self-employment earned income as calculated by the IRS.

When to start

The best time to start saving was 20 years ago, but the second-best time is now. The principle of saving early and often applies to the self employed just as much as it applies to traditional workers. With the right plan in place, you can get started right away.

According to a 2022 study, nearly one-third of freelancers are over the age of 50. Although many find their work to be very satisfying, that doesn’t mean they want to do it forever. And while some small business owners can rely on the sale of their business to propel their retirement, freelancers do not always have the same opportunities to do so.

For traditional employees, securing a strong retirement can be as simple as a few clicks of a button. Freelancers and other self-employed workers have more administrative work to do, but can use SEP IRAs and Solo 401(k)s to their advantage. Even with a non-traditional income stream, the principles of saving for retirement are just as important when building a strong financial future.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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