Here are our suggestions to avoid obsessing over expenses:

1. Set Realistic Budgets
2. Automate Savings
3. Limit Financial App Usage
4. Focus on Big Wins
5. Practice Mindful Spending
6. Seek Professional Advice
7. Seek Professional Advice

Freddie Smith’s video sheds light on the concerning issue of the United States massive $35 trillion debt. How it could negatively impact upcoming generations, especially Millennials and Gen Z. In 2023 the government spent $6.1 trillion surpassing its revenue of $4.4 trillion. A considerable part of this expenditure went towards Social Security with $1 trillion solely allocated to servicing the debt. To emphasize the seriousness of the matter Smith draws a comparison, between the debt and an individual dealing with a $350,000 credit card balance while earning $444,000 annually where $10,000 is used for debt repayments. This powerful analogy highlights the hurdles that Millennials will face.

Our Take:

Boomers vs. Millennials: The Affordability Feud

There is an ongoing debate about which generation had it harder when buying their first home: Boomers or Millennials. Millennials often claim that houses are prohibitively expensive today, while Boomers argue that high interest rates in their time were a significant hurdle. A detailed analysis of historical data from the 1970s to today, including interest rates, home prices, and incomes, reveals surprising insights.

The Shocking Truth: Affordability Across Generations

Despite higher monthly payments today, they account for a smaller percentage of the average household income compared to 1981. Boomers were spending over 36% of their income on housing, whereas Millennials spend about 25%.

Beyond the Numbers: Rethinking Affordability

While home prices have increased due to inflation, the key takeaway is that housing costs should ideally be around a third of your income. Including taxes and insurance, Millennials' housing expenses are likely close to this mark. Therefore, based on the affordability ratio, Boomers had a tougher time affording homes despite lower prices.

Thus, contrary to common belief, Boomers faced a more challenging home-buying experience due to higher interest rates and a greater proportion of their income going toward housing costs

Mindful Spending Habits for Budget-conscious Millennials

The pandemic's effects linger, with rising living costs and budget cuts. Today, only 51% of Americans are classified as middle class, down from 61% fifty years ago, according to the Pew Research Center. Millennials prioritize financial security over Gen Z's impulsive spending habits. Given the high risk of recession indicated by S&P Global, adopting mindful spending habits is crucial for financial stability.

Reinforce Your Emergency Fund Regardless of recession threats, having an emergency fund is essential. Aim to save three to six months' worth of expenses to avoid high-interest debt.

Financial Wellness Apps Apps like Mint and Oportun simplify budget management and saving.

Embrace Minimalist Principles Inspired by Marie Kondo, minimalism involves decluttering and simplifying life.

Ethical Spending Practice mindful spending by supporting brands that align with your values and investing in companies practicing sustainable methods through ESG (environmental, social, and governance) funds. These investments can be as lucrative as conventional ones with generally lower risks.

Financial Independence Retire Early (FIRE) FIRE advocates extreme savings, investments, and frugality to retire early. Based on the book "Your Money or Your Life" by Vicki Robin and Joe Dominguez, the idea is to save up to 70% of your income and live off small withdrawals. This method requires evaluating expenses in terms of work hours required to pay for them.

Achieving financial security involves making intentional and mindful financial choices. By adopting these habits, you can control your spending and build a stable financial future.

In our opinion, Millennials tend to place importance on finding work that holds personal meaning rather than focusing solely on financial rewards. Studies show that Millennials frequently prioritize a balance between work and personal life meaningful experiences and ensuring that their job aligns with their values rather than just chasing after money. This shift in priorities among millennials highlights a trend where they prioritize fulfillment and a sense of purpose in their lives, even if it means forgoing higher financial gains.

Our Take: As a Millennial favoring alternative assets like hedge funds, private equity, and cryptocurrencies over traditional stocks and bonds, you should first consider some of the possible pitfalls: 

Risk and Volatility: Alternative assets can be more volatile and risky compared to traditional investments.

Liquidity Issues: These assets often have lower liquidity, making it harder to access your money quickly when needed.

Higher Costs: Management fees for hedge funds and private equity can be significantly higher than those for traditional investments.

Lack of Regulation: Cryptocurrencies and some alternative assets may lack regulatory oversight, increasing the risk of fraud and loss.

Diversification Balance: Over-reliance on alternative assets can lead to an imbalanced portfolio, reducing overall stability.

Ensuring you understand these risks and maintaining a balanced investment strategy is crucial for long-term financial health.

Our Take:

Advice for Millennials Using TikTok and Reddit for Investment Ideas

Exercise Caution with Hot Tips: While TikTok and Reddit can provide a wealth of information and diverse perspectives, they are also platforms where speculation and risky investment advice can flourish. Be cautious about jumping into "hot stocks" or speculative investments without thorough research.

Diversify Your Information Sources: Don't rely solely on social media for your investment knowledge. Balance the insights you gain from TikTok and Reddit with information from more traditional and reliable sources such as financial websites, newspapers, and advice from financial professionals.

Do Your Own Research (DYOR): Before making any investment decisions based on social media tips, conduct your own research to understand the fundamentals of the investment. Look into the company's financial health, market position, and long-term prospects.

Focus on Long-Term Goals: Avoid the temptation to chase short-term gains. Aim to build a diversified portfolio that aligns with your long-term financial goals. This approach reduces the risk of impulsive decisions that could lead to significant losses.

Understand Your Risk Tolerance: Assess your risk tolerance and ensure that your investments match your ability to handle potential losses. High-risk investments can offer high rewards, but they can also result in substantial losses.

Be Wary of FOMO (Fear of Missing Out): Social media can create a sense of urgency and fear of missing out. Remember that successful investing requires patience and discipline, not reacting impulsively to trends.

Learn from Diverse Perspectives: While more men than women report coming up with their own investment ideas, studies suggest that women tend to focus more on long-term goals and typically outperform men in investment returns. Consider these diverse approaches and incorporate what aligns best with your financial strategy.

Consult Financial Advisors: When in doubt, seek advice from a certified financial advisor. They can provide personalized guidance based on your financial situation and goals.

Conclusion

Using TikTok and Reddit for investment ideas can be beneficial if approached with caution and complemented by thorough research and advice from reliable sources. By focusing on long-term goals, understanding your risk tolerance, and avoiding impulsive decisions, you can navigate the financial markets more effectively and build a robust investment portfolio.

Our Take:

To ensure the continuation of Social Security, a viable plan should address both revenue and expenditure issues, focusing on sustainability and fairness. Although no doubt unpopular, here are key components of such a plan:

Raise Payroll Tax Cap: To boost revenue without overburdening lower—and middle-income earners, increase the cap from $168,600 to $400,000.

Adjust Payroll Tax Rates: Slightly increase tax rates for employers and employees, implemented gradually to minimize economic disruption.

Raise Full Retirement Age: Gradually increase the retirement age to 70 for younger workers, reflecting longer life expectancies and reducing financial strain.

Means-Testing for Benefits: Implement means-testing to ensure higher-income retirees receive reduced benefits, directing more funds to those who rely on Social Security.

Incentivize Private Savings: Encourage private retirement savings through tax incentives and employer matching programs to reduce reliance on Social Security.

Improve Program Efficiency: Streamline administration to reduce fraud, waste, and abuse, and invest in modern technology for better enforcement.

Educate and Engage the Public: Raise awareness about the importance of Social Security reform and engage citizens to build support for necessary changes.

Diversify Investments: Allow a portion of the Social Security Trust Fund to be invested in a diversified portfolio for potentially higher returns.

Key Takeaways You Can Put into Action

1. Get Started on Budgeting

2. Focus on Repaying Debts

3. Establish an Emergency Fund

4. Keep Tabs on Your Credit Health

5. Kickstart Your Investment Journey

6. Have Money Talks with Your Partner

Use this quiz to check your knowledge on retirement savings and ensure you're on the right track to securing your financial future! The answer will be in next week’s issue of the newsletter.