a survey by the American Psychological Association. Other studies also show that over half of millennials are unhappy with their financial situations.
So how can 20-somethings crush their money stress in 2014? Here's a breakdown of our biggest financial fears –– and how we can conquer them.
1. Fear of Getting Started
Money isn't an easy topic to dive into. I’ve talked to thousands of people about money and can’t recall anyone ever saying, “I feel great about my money. I’ve got this.” Whether it’s the head-in-the-sand approach (unopened bills) or the procrastination method ("I know I’m overspending, but I'll deal with it later"), it’s critical to make progress, and we all have to start somewhere. If you’ve never taken a course on personal finance, you’re not alone. Most schools around the country don't offer personal finance education, and most of us have no idea where to start.
Fearless Tip: Get a financial plan. Put everything in one place and look at the whole picture. Where do you want to go in the next year, five years, and beyond? Sit down and think through your dreams. Start by setting clear goals (“I want to spend six months traveling the world” or “I want to buy a house in three years”), so you can figure out how much you’ll need to save away to get there. It's not always easy to do, so don't be afraid to consult a financial expert who can help you craft a plan.
2. Fear of Knowing Your Net Worth
Most 20-somethings I know wouldn't be able to name their net worth on the spot. While “net worth” might sound like a term reserved for the uberwealthy, it’s merely a mark of where you stand financially. Knowing your financial number is a bit like stepping on the scale. Although your number today might be negative (due to factors such as student loan or credit card debt), that won’t always be the case. Your net worth is easy to calculate: It’s your assets (money in your savings account or 401(k), for example) minus your liabilities (any debts or outstanding loans).
Fearless Tip: Keep a handle on all your financial statements. To organized them, set up an email account just for your bills (e.g., email@example.com). Next, link all of your accounts to a free online management tool, which helps you calculate your net worth. It will show your spending and savings across all aspects of your life. Managing your money is a question of math; it’s a solvable problem.
3. Fear of Budgeting
At first glance, budgeting seems like it’s all about restricting yourself, right? I see so many people who don't budget, instead saying, “I don’t need to budget now. I hardly make enough to cover my expenses. I’ll figure it out eventually.”
Fearless Tip: Implement the 50/20/30 method: a simple budgeting guideline that helps you save, while leaving room for you to enjoy your hard-earned cash. Here's the breakdown: 50 percent of your take-home pay goes to your essentials ( rent or mortgage, transportation to work, groceries, and utilities), 20 percent goes to your future (debt payment, retirement savings, emergency fund), and the rest — 30 percent — goes to your lifestyle (all the fun stuff: travel, dining out, shopping).
To stay on track, check your online accounts first thing in the morning to kick-start your day. This daily action might seem like it's over the top, but even simply reviewing your recent transactions and glancing at your budget goes a long way.
4. Fear of Never Escaping Student Loan Debt
Right now, Americans share a collective $1 trillion in student loan debt. Talk about daunting! Nearly 70 percent of Americans graduate from college with student loans; on average, their balances are north of $25,000. Even with a degree in hand, it can be paralyzing to tackle such large debts, especially in a tight job market.
Fearless Tip: Start by taking stock of your loans: How much do you owe and what's the repayment schedule? There are many repayment options, including one that might be better for your financial situation. A loan consolidation would combine your loan payments into just one. If you work in public service, check out the Public Service Loan Forgiveness Program. You might be eligible to have your direct loans forgiven. Also, if you’re ever in a position to pay additional money toward your loan payments, make sure to include a note saying the extra cash should go toward the principal (not toward a future payment). That way, you’ll be lowering the principal and cutting back on future interest.
5. Fear of Never Becoming a Homeowner
The majority of people believe that owning a home is central to the American dream –– but many Americans are struggling to pay their bills, so how in the world do you fit a house into that equation?
Fearless Tip: If homeownership is a priority for you, start doing your research. How much home can you afford? What kind of property will be the right fit for the next five to 10 years and beyond? What location will make the best investment? This might be very well be your largest purchase, so it's critical to get it right. At LearnVest, we recommend making a down payment of at least 20 percent, which is required by many lenders . Remember: Your home (rent or mortgage, insurance, and tax) should cost no more than 30 percent of your take-home pay. This is an area I see people overspend on again and again.
6. Fear of Your Credit Score
I think of your credit score is the only grade that matters after school. It's a measure of how trustworthy you'll be to future lenders, and you want to aim for a score north of 760. There are tons of misconceptions about credit scores, not to mention credit card usage in general. I had a friend who thought she could make only the minimum payment every month. She had no idea she had to pay off the balance to avoid interest charges.
Fearless Tip: You can check your credit score for free at sites such as CreditKarma.com. There’s no harm in checking it as often as you'd like, because it’s not a “hard inquiry” on your score. Once you know where you stand, you can find ways to improve your score by knowing how it’s calculated. It’s a combination of your payment history (never miss a payment), credit utilization rate (never max out any one card beyond 30 percent of your credit limit), credit history (never cancel your oldest card), new credit (how many accounts you’ve opened recently), and types of credit (e.g. credit cards, student loans).
Believe it or not, one of the most damaging mistakes I see people make is a simple one: not properly setting up mail-forwarding when they move. As a result, they might miss important things like medical bills or parking tickets. All it takes is one bill going to a collections agency to have a massively negative impact on your credit score.
7. Fear of Asking for a Raise
To improve your finances, you can either increase your top line or decrease your bottom line. It’s important to keep your career and salary moving forward. Even if your lifestyle costs stay the same over time, you have to account for inflation, which averages about 3 percent per year. Your lifestyle will naturally cost more over time and yet, almost one of five people admits to never negotiating his or her salary.
Fearless Tip: Educate yourself on what you should be earning, using sites such as Salary.com. Arm yourself with concrete examples of how you’ve exceeded your goals and added value to the company. Then, pick the right time to meet with your manager and speak up for yourself.
8. Fear of Never Retiring
The stats are scary: 30 percent of Americans plan to work until they’re over 80. That vision of spending your golden years lounging on the beach might seem out of reach once you calculate how much you’ll need to save. Retirement may seem really far off right now, but if you start preparing for it in your 20s, time is on your side — and, with it, compounding interest.
Fearless Tip: Shift your thinking: You’re essentially going to work for 40-plus years of your life to fund 70-plus years of your life. Instead of depriving yourself of money today, you’re putting aside money for future spending. Do the math and figure out how much you need to save. If your employer offers any sort of 401(k)-matching program, take advantage of it! That’s free money you’re otherwise leaving on the table.
I know money can seem scary, but it doesn't have to be. It’s a new year, and a new opportunity for you to take control of your money and say goodbye to your financial fears, once and for all.
Alexa von Tobel, CFP, is the author of "Financially Fearless" and founder and CEO of LearnVest.com, an award-winning financial planning site. A certified financial planner who attended Harvard Business School, von Tobel has been featured as a financial expert in the Wall Street Journal, the New York Times, BusinessWeek, Fast Company, Forbes, InStyle, and Glamour and on the "Today" show, "Good Morning America," ABC News, Bloomberg News, and more. Her speaking engagements include Maria Shriver's Women's Conference, SXSW, the Fortune Most Powerful Women's Conference, and TEDxWallStreet. She is also a columnist for Cosmopolitan, Inc. Magazine, and Ladies Home Journal.