Estate Planning Financial Strategies for Millennials

Shari Rash
February 26, 2024
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Money is a whole topic and let's be real, the road to financial savvy can be a bit bumpy: student loans, job market roller coasters, and all those financial curveballs. It's like we're playing a game of Monopoly, but the stakes are real. But here's the good news: in every challenge lies an opportunity.

In this article, let's discuss the importance of early estate planning, investing smarts and the lowdown on taxes, so you can make informed decisions and set yourself up for a financially solid future.

The Changing Landscape of Millennial Spending

Millennials, the children born of Baby Boomers and Gen Xers, have experienced multiple financial disruptions upon reaching adulthood and in their early working lives. Millennials have not hit the financial milestones that generations before us achieved, due to financial setbacks such as the market downturn in 2008, the Great Recession and Covid-19 pandemic. Student loans, stagnant salaries, rising interest rates and inflation are continuing to kick us as we are financially down. 

Millennials, the cohort born between 1981 and 1996, do not have the poor spending habits or poor money management skills older generations believe they have. We spend money on streaming services, convenience, and online shopping, Millennial spending is a reflection of the changing of times. But we also put our money where our mouth is by supporting socially responsible brands and buying from companies we believe in. 

We spend our money on the same things as previous generations, we just have less money to spend, so in turn spend less on what previous generations valued. In comparison, millennials spend less on cars, clothes and housing. On a positive note, Millennials have started saving earlier for retirement and are the largest cohort buying houses. 

Building Wealth in the Prime of Life

As millennials move towards the prime of their lives, the decisions they make now will most likely determine their financial stability in the future. Therefore, in order to build wealth, millennials need to create a holistic financial plan that prepares them appropriately for the future, adopts tax-smart strategies and manages appropriate risk-adjusted returns on investments. By making the investment (literally and figuratively) in themselves and their financial future today, they can secure a positive long-term impact. 

Widespread student loan debt, an unstable job market, static wages in the face of rising living costs, the fallout from the housing crash and the global financial crisis, has left many millennials grappling with difficult economic circumstances. However, in every challenge lies an opportunity. With a proactive approach towards systematic saving, estate planning and suitable investment options, millennials can navigate toward wealth building and financial wellness.

For millennials, investing can be one of the most effective ways to build wealth over time, combatting the economic conditions that they struggle with, such as stagnant wages and high living costs. Because of the market volatility millennials have seen, by investing consistently, we have the opportunity to follow the golden investing rule: buy low and sell high. Many millennials saw their 401k cut by 50% in 2008, but those that continued to invest during that volatile time, are seeing the fruits of their steadfastness as the market rebounded and continued to grow after. 

Technological advances and access to information allow for millennials to diversify their investments and realize growth. Online investment platforms, robo-advisers, and easy access to global markets have increased opportunities and simplified investing. These modern investing tools align well with the tech-savvy millennial mindset, making investing more approachable and less time-consuming.

Millennials' Unique Approach to Investments

Research has shown that millennials are notably different from prior generations in their investments preferences. They tend to prioritize investing in causes and companies they personally believe in and support. For example, a growing trend among millennials is interest in “Impact Investing” – investing in businesses that align with their values on social, environmental, or corporate governance issues.

Moreover, real estate investment is another avenue gaining traction among millennials. Rather than being a homeowner, many millennials opt to invest in income-generating real estate properties. This allows millennials to have a steady stream of passive income while they focus on career advancements and other financial objectives.

Tax-Smart Strategies for Millennials

In an ever-evolving financial landscape, tax-smart strategies have proven to be viable tools for wealth building among Millennials. Tax aware investing focuses on limiting the tax burden on investment returns to increase potential savings. 

Tax aware strategies mainly revolve around timing income, minimizing trading, and utilizing tax-efficient investment vehicles. Some tax-aware strategies include:

1. Strategically Timing Income 

Contributing to tax deferred accounts such as 401ks, Individual Retirement accounts (IRAs) or health savings accounts can reduce your taxable income, reducing your overall tax liability. Investing in tax-advantaged accounts like 401(k)s and IRAs defer taxes on gains until the future, letting the investment profits compound over time.

Roth IRAs are also a powerful tool when it comes to managing taxation. Although you pay into the Roth IRA with after tax dollars, come retirement your gains are withdrawn tax-free, potentially lowering your tax bill in retirement. 

2. Manage Deductions

Another tax-smart strategy is maximizing allowable deductions and utilizing tax credits. Deductions such as student loan interest payments, self-employed health insurance costs, and home office deductions can significantly manage taxable income, thus increasing the dollars that go to you instead of Uncle Sam.

Utilize Tax-Efficient Investment Vehicles

Millennials should consider using tax-efficient investment vehicles like index funds or Exchange Traded Funds (ETFs) that offer low turnover rates. 

While tax-smart strategies offer suitable methods to manage the potential taxes you will pay, they are only a small part of a holistic financial plan. Navigating the world of finances and investments can be daunting for millennials; which is why it is important for millennials to find like-minded financial professionals to guide them through the financial maze. 

Building a Solid Financial Foundation

To create a solid financial foundation, millennials should approach financial planning from a more comprehensive point of view. Building a solid financial foundation encompasses budgeting and saving, investing, tax planning, risk management, and retirement planning.

1. Budgeting and Saving

Fundamental to any financial plan is a budgeting and saving process. The first step of building wealth starts with developing and following a disciplined budgeting system and implementing a habit of saving for the future.

2. Investing

The significance of investing can't be stated enough. An effective investment plan aids in battling inflation and working towards financial growth. Millennials are encouraged to diversify their portfolio to mitigate risk and manage potential profits.

3. Risk Management

Another crucial aspect of any holistic financial plan is risk management. Purchasing suitable insurance coverage to preserve against possible financial losses is a wise move in fortifying your financial future.

4. Retirement planning

Contributing to retirement plans at an early age is key in ensuring a stable and secure financial future. Millennials are already aware of the importance of retirement planning, as they are on track to historically save more than previous generations. But they need to understand that market volatility is normal and to be expected. They can not allow market volatility to discourage their market participation.

The Importance of Early Estate Planning for Wealth Preservation

Despite common misperception, estate planning is not a practice only for the elderly or ultra-rich. It is a crucial aspect of financial planning that millennials should consider at an early stage. Early estate planning provides legal direction on how your assets may be distributed after your demise, ensuring that your wealth stays intact and is allocated according to your preferences. Furthermore, estate planning can preserve your wealth from exorbitant taxes, legal fees, and family disputes over inheritance, playing a crucial role in wealth preservation.

Estate planning also involves appointing power of attorney and healthcare directives, which prepares for the possibility of incapacitation due to illness or injury. Preparing these can provide millennials financial independence, knowing that their financial stability and healthcare wishes may be upheld even in unforeseen circumstances.

The road to financial well-being is filled with challenges and opportunities alike. Millennials can turn these challenges into opportunities with strategic planning and by exploring investment avenues that resonate with their lifestyle and preferences. Prioritizing early estate planning not only provides a sense of security but also aids in wealth preservation. Meanwhile, aligning investments with millennial preferences can motivate millennials to engage in investing and generate robust returns over time.

Need Some Help?

Seeking professional advice can provide guidance and clarity in the often complicated terrain of personal finance. Engaging with a financial professional or a tax consultant could be a valuable investment for millennials. By having a trusted professional in your corner helping you make timely financial decisions and create a financial plan, your future self will thank you for, so let’s start the conversation!

With the right tools and mindset, millennials can overcome the financial hurdles they face and build a path towards sustainable wealth juxtaposed with personal fulfillment. As they say, it's never too early to start planning for your future, and for millennials, the future starts now.

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Estate Planning Financial Strategies for Millennials

Money is a whole topic and let's be real, the road to financial savvy can be a bit bumpy: student loans, job market roller coasters, and all those financial curveballs. It's like we're playing a game of Monopoly, but the stakes are real. But here's the good news: in every challenge lies an opportunity.
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