I joined a personal finance company, Personal Capital, a year ago. I spend my time at work thinking about the answers to the common questions Americans have about their finances. And my friends have taken notice.
I regularly find myself fielding questions about personal finance from a cross-section of my impressive friends. Some are high-paid lawyers and others are Wall Street types. Some are teachers making comparatively little and others are tech workers rich in illiquid options. Some are on the east coast, others on the west.
Regardless of their financial situations, the same questions are top of mind. From my perspective, based on the conversations I've been having, here are the top financial concerns of the urban, educated millennial:
1. When can I have enough to buy a first home?
I recently went to a housewarming party hosted by friends who bought a place in San Francisco's Mission District. Two couples actually went in on the place together, using a four-person mortgage and a whole lot of trust to buy a place in a city one of them said they "never thought they'd be able to buy in for a long time". And these are Harvard Business School grads! If they can barely buy a home, how can the rest of us?
I also recently met up with a friend in his late 20s who works at one of the largest Wall Street firms. His husband works at Google. Even they have ruled out buying a home in San Francisco for a good while, despite their high salaries.
When I talk to my friends about buying a home (or in San Francisco terms, a small apartment), saving for a down payment seems so difficult that only a windfall could make it possible. In fact, that's what research has shown. My advice to friends is either make a lot of money in finance, have equity in a successful start-up, or move somewhere else. Or call your rich uncle.
2. Can I retire early if I do everything right?
I recently had lunch with a friend who is a corporate lawyer making over $200,000 a year at a top law firm. At that salary, it initially seemed like this corporate lawyer should be able to save up enough to reach financial independence and retire early. Then we started to talk through the numbers. After taxes, rent in the big city, living expenses, and the occasional vacation, there was only $5000 a month to put away. That's no chump change! After a few years of saving, that should be enough to retire, right?
But using just one of the many retirement calculators out there, it became clear that the corporate lawyer couldn't retire early, despite putting away huge sums each month. Not including the need for a down payment on a home or putting children through college, she could retire at age 57. Of course, a $200k salary would be just the beginning, and she could save more over time. But 57 still seemed a lifetime away.
A lifetime of financial independence is practically impossible to attain unless you're relying on being an early employee of the next Instagram or Twitter. And even those employees who can be financially independent often keep working, even though they might not need to. Accomplishment is often a bigger driving of happiness than a large bank account. Finding a job you love is far more motivating than striving for an early retirement in a high-paying job you loathe.
3. How do I get out of student debt?
There is a depressing drumbeat of coverage of our nation's student debt crisis. Our nation's students now have $1.2 trillion in outstanding student loans, holding us back from buying homes or starting families. My experience is just one of many.
When friends ask how to handle student debt obligations alongside other financial priorities, my advice follows what I outlined in a previous post. I tell them to make sure they build a 3-6 month emergency fund and are saving in their 401k at least up to any company match before starting to aggressively pay down the debt. My friends are often still overwhelmed, with debt payments looming for another 10 years.
My plan has three parts. First, refinance to get lower interest rates (from a provider like SoFi or CommonBond). Second, commit to living frugally, even if they have a high salary or get raises and bonuses. And third, pay down the principal of their loans as aggressively as possible. Not only will they be out of debt in fewer than ten years, they'll also save a lot on interest payments.
4. How should I think about inheritance?
One of my friends pulled me aside recently to tell me he just found out about a $600,000 trust fund his parents set up for him. Successful in his own right and bred to be a self-made man, this late 20-something had been paralyzed with shame about the inheritance. Clueless about what to do next, he sought my advice.
I asked him a lot of questions. Does he want to go back to grad school? Does he want to buy a house? Would he consider making a career change? When I gave him advice, it was simple: invest it wisely either in yourself, real estate you will live in, or a diversified retirement account. I recommended he talk to a Registered Investment Advisor (who have a fiduciary duty to act in his best financial interest) rather a broker (who do not). Naturally, I told him to speak to a Personal Capital financial advisor, who are the folks I work with and trust.
You shouldn't make any decision, particularly a financial one, without seeing the big picture. If an inheritance is in your future, it's best to know it's coming and be able to prepare for it. This might involve some awkward conversations, but it's worth knowing what might be left for you.
My friends - representing the urban, educated millennials - tend to be doing very well financially. And yet many are still unsure how to get out of debt, pay for a home, plan for retirement, or think about inheritance. There are lots of questions. Luckily, we have time on our side to find the answers and make smart financial decisions.
Michael Ruderman is an employee of Personal Capital.