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7 Smart Banking Tips for Millennials

Surveys show that the young adults of the millennial generation are mostly optimistic about their financial future. The key, however, is to put that optimism into practice. Here are some tips for banking smart now to help secure that hoped-for financial freedom.

  • Determine long-term goals.
    Where would you like to be financially in 10 years? If you can picture that debt-free budget sheet, family house or trip around the world, it’ll be easier to stick to a plan to get you there. Then, establish your road map for achieving those goals by creating a smart budget, one that not only looks good on paper but also works in your daily life.
  • Set up a checking account.
    This establishes your financial profile. Account terms vary; watch out for monthly and ATM fees, deposit and withdrawal limits and hidden fees for not following account terms. Not-for-profit member-owned institutions such as Valley Communities Credit Union often offer lower costs for basic services such as checking and savings accounts.
  • Have an emergency fund.
    Experts advise having three to six months’ worth of expenses saved for a crisis. Yet in a recent survey, 4 in 10 people said they didn’t have even $1,000. Closing this gap requires budgeting to save.
  • Use technology to manage your budget.
    With online banking you can view daily expenditures, transfer money between accounts and pay bills timed with your paycheck deposits. Consider directing part of your paycheck to a savings account — paying yourself for the future.
  • Establish credit.
    Good credit depends on many factors, including a history of using credit responsibly, paying bills on time and paying debt down. The higher your credit score, the more creditworthy you’re viewed for loans, and even employment and apartment rentals. That can translate into lower interest costs and more opportunities.
  • Pay off debt.
    If you’re one of the many millennials overwhelmed with student loans, your priority may be to pay them off. That may include refinancing the debt to obtain lower interest rates. It’s also really important not to add new debt, such as credit card purchases you can’t afford or high car-loan payments.
  • Start saving for retirement.
    Contributing to an employer 401(k) savings fund or an individual retirement account, or IRA, can reduce your taxable income now and help build your nest egg. The magic of compound interest -- interest paid on previously earned interest -- illustrates that time is among the most important factors in reaching savings goals.
    Suppose that, at age 25, you start with $5,000 and get an annual return on investment of 7.4%. Interest is compounded monthly, and you contribute an additional $500 each month. Your estimated savings would top $1.5 million after 40 years, at age 65. If you invest the same amounts -- an initial $5,000, followed by $500 each month -- but don’t start until you’re 40, by the time you’re 65 you would have $465,940 – about one-third of the other total but amassed over almost two-thirds of the years.

The banking industry is looking at how to change over the next 10 years to meet the habits and preferences of millennials. For many of those young adults, that time will be spent finding fulfilling work, paying off debt and earning the financial freedom to start fulfilling life goals.

Terri Kaufman, NerdWallet