The Unsexy Reality of Millennial Financials

A couple days ago I came across a post on Instagram offering financial advice.  It was written by an entrepreneur-slash-influencer whose follower base I would argue is largely millennial – current college/university students or those in their mid-to-late 20s that are still rather early in their careers.  The directions were fairly simple:

·        Take 30% of your income and put it in an “Investments” account. ($2,400 paycheque = $720)

·        Take 10% of your income and put it in a “Treat” fund. This is for that vacation or night out you deserve.($240)

·        Determine your absolute expenses. Put the exact cash in an “Expense” account. ($1,164 based off existing bills).

·        Figure out what’s left. That is your spending cash. ($2,400 - $720 - $240 = $1,440 - $1,164 = $276.)

·        Separate your savings (I & T) from the rest of your money.

·        Change your online banking settings to ignore these accounts when totalling your cash.

·        Start living off your “operating cash” (E & S).

After these directions, the following advice was given:

Not stoked about the spending cash number? You can start with 20% for investments instead of 30%, but I challenge you to start by re-evaluating your “set” expenses.

·        Can you split your Netflix payment with a friend?

·        Do you need to spend $250 on a personal trainer you avoid?

You will become frugal, creative, and kind of turned on by the idea of NOT spending it. It’s like an orgasm in your bank account. 

This is where I was left more than a little salty.  Do I think that money management is an important skill that everyone – millennial or otherwise – should learn?  Absolutely.  But what kind of income do you actually need in order to make it feasible to take this advice? 

I’ve elected to break this down for six different yearly salaries, starting at $30,000 (a not uncommon starting salary) and moving in $10,000 increments until $80,000 (a relatively high end salary for someone in their 20s).

Yearly Salary	Take Home	Monthly
$       30,000.00	$   24,992.00	$  2,083.00
$       40,000.00	$   31,998.00	$  2,667.00
$       50,000.00	$   38,818.00	$  3,235.00
$       60,000.00	$   45,516.00	$  3,766.00
$       70,000.00	$   52,466.00	$  4,290.00
$       80,000.00	$   59,416.00	$  4,815.00

Okay, so let’s on to step one and take 30% out and put it towards investments, and then take 10% and put it in a treat fund.  Here we go: 

	$  30,000	$  40,000	$  50,000	$  60,000	$  70,000	$  80,000
Investments - 30%	$        624.90	$        800.10	$        970.50	$    1,129.80	$    1,287.00	$    1,444.50
Treat - 10%	$        208.30	$        266.70	$        323.50	$        376.60	$        429.00	$        481.50
Total - I+T	$        833.20	$    1,066.80	$    1,294.00	$    1,506.40	$    1,716.00	$    1,926.00
Remaining	$    1,249.80	$    1,600.20	$    1,941.00	$    2,259.60	$    2,574.00	$    2,889.00

Let's say that our theoretical worker shares living arrangements with a friend and/or significant other.  Their household expenses may look something like this:

Mortgage/Rent   $   650.00  Electricity   $   50.00  Gas   $   50.00  Phone   $   75.00  Internet   $   35.00  Home Supplies   $   20.00  Groceries   $   300.00  Health Insurance   $   75.00  $  1,255.00

After dealing with pretty basic essentials (I would call these the essential absolute expenses), things are already not looking so good for our lowest earning millennial:

	$ 30,000	$   40,000	$ 50,000	$ 60,000	$ 70,000	$ 80,000
After I+T	$  1,249.80	$   1,600.20	$   1,941.00	$   2,259.60	$   2,574.00	$ 2,889.00
After Household	-$   5.20	$  345.20	$  686.00	$ 1,004.60	$ 1,319.00	$ 1,634.00

Forget spending cash; our $30k earner currently can't even afford a bus pass to get them to work.  Our $40k earner is doing slightly better; as long as they don't want to own a car, they can purchase a bus pass (approximately $100) and still have some money left over.  Our $50k per year millennial is potentially able to swing one of the next most common absolute expenses and purchase and drive a car.  Let's assume they purchase a pretty basic entry model, somehow get reasonable insurance, and use no more than two tanks of gas per month.  Their expenses (without any maintenance) would be something like:

Vehicle Payments	$         300.00
Fuel	$         100.00
Insurance	$         125.00
	$         525.00

It shouldn’t be a surprise that owning a car is expensive.  If you live in a city with good public transit and are fortunate enough to live on relatively decent bus lines, not owning a car is doable, and maybe even convenient.  But for many, even within a city, a car is the difference maker when it comes to cutting out several hours of commuting per day just to get to work and back – let alone anywhere else you may want or need to go.  If you live outside of a city where public transit is limited or non-existent, the need for a car only increases. 

Car ownership means a big hit for our theoretical millennial, but as long as they are earning at least $50k, they are still in the black when it comes to their absolute expenses:

	$   30,000	$  40,000	$   50,000	$   60,000	$   70,000	$     80,000
After Vehicle	-$   530.20	-$  179.80	$  161.00	$   479.60	$  794.00	$    1,109.00

At this point, our theoretical millennial may be feeling sort of ok about their position in life and ready to take on some very basic frills of absolute expenses.  For our purposes here, I’ve picked three very common ones:  basic grooming, a gym membership and pet ownership.  I will admit that all three are “non-essential” in the sense that they add to your life, but are hard to justify when you’re broke.  I will also argue that most university graduates with steady employment likely want or expect to be able to afford either these items or some others similar to them.  Let’s add these absolute expenses into the mix.

Basic Grooming	$           40.00
Gym Membership	$           50.00
Pet Ownership	$           75.00
	$         165.00

After spending only $165 on some very basic frills (our theoretical millennial hasn’t even gone out for dinner once this month), our $50k earner is now in the red:

	$       30,000	$       40,000	$       50,000	$       60,000	$       70,000	$            80,000
Basic Frills	-$      695.20	-$      344.80	-$            4.00	$       314.60	$       629.00	$            944.00

Three of our six sample millennials are already not able to sustain this financial template and there’s a very big elephant of an absolute expense in the room that we haven’t even addressed yet.  If you have it, you’ve probably been waiting for it to come up.  Yes, it’s our good friend debt, which we will address here in the form of student loans. 

Some of the words thrown around when it comes to the millennial student debt load include “crippling” and “crushing”.  Nearly 70% of Canadian students graduate with at least some money owing, with $20,000 being an average debt load. For Americans, the average debt load tends to be even higher ($30,000…and in USD). You are expected to pay your loans off over a 10-year period.  So, what do those monthly payments look like?  Here’s a rough idea based on the current floating interest rate:

	$ 10,000.00	$ 20,000.00	$ 30,000.00	$ 40,000.00	$ 50,000.00	$      60,000.00
Student Loans	$       113.29	$       226.59	$       339.88	$       453.17	$       566.47	$            679.76

The monthly repayment of that average of $20,000 in student loans is 75% of an entry-level car or 35% of shared rent.  And this isn’t just a payment or two; this is a 10 year burden – one that the vast majority of university-educated millennials are dealing with.  Debt is very real and it’s a massive privilege to not be saddled with it. 

So what do finances look like for our theoretical millennial after adding in the absolute expense of debt repayment?  Not too fantastic:

	$       30,000	$       40,000	$       50,000	$       60,000	$       70,000	$            80,000
After Loans	-921.79	-571.39	-230.59	88.01	402.41	717.41

Our $60k earner is still in the black, but not by much.  They have $88 to play with for entertainment, dining out, clothing, and any unforeseen expenses (maybe the car needs an oil change, or the cat needs their yearly vaccinations).    

When all is said and done, this financial advice becomes relevant and useable at a yearly income of roughly $70,000 per year.  The majority of recent college graduates are not making $70,000 per year.    

Seeing advice like this being given to this demographic bothers me because we are talking about an audience that is already constantly bombarded by unrealistic financial expectations that skew their perspectives.  How many college students are sitting in class right now thinking that all they need to do is put in their time, grab that degree, and boom, funnel on out the other side and into that sweet $60k per year starting salary?  I remember sitting in a first year professional development class when this very question was asked of us.  Well over 50% of the people in that class raised their hands.  

For the majority of us, this is not the reality.  Full stop.  And if you're in a soft-skills profession (most arts degrees, for example), your entry level job is probably comes with a significantly lower salary.  This isn't you failing; it's market reality.  Are you working for a smaller company?  Are you working in non-profit?  Congratulations; it will be even harder for you to claw your way up to the salary that other people have been trying to tell you should have been your starting salary in the first place.

Financial advice for the average-to-median earner isn’t sexy.  The above examples didn’t even include very real life wrinkles like dependents (whether adult or children). 

This is not a matter of sharing Netflix with a friend or cutting a $250 personal trainer; if you’re the average entry level worker with student loans, it is not realistic to invest 30% of your income.  You are not wrong, falling behind, or otherwise failing compared to your peers.  The outlier is the high earner, not the person making the average.  This doesn’t mean that you can’t or shouldn’t aspire for more but we need to stop encouraging millennials – whether overtly or subtly – to feel less than while they are grinding away and trying to make it in the world.