Millennials and Money: The 5 Best Ways to Cut Debt and Save More

By Barry Glassman, CFP®

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It shouldn’t come as a surprise to learn that today’s young people have been forced to deal with more than a few hurdles when it comes to building their own financial freedom. It’s even been said that the Gen-Y Millennials – typically defined as those born between 1982 and 2004 – are turning their backs altogether on what we use to call the American Dream, perhaps because they don’t have a choice.

We work with many of our clients’ children at Glassman Wealth Services, and their most frequently asked question is, “How can I save more money?” It’s not an easy question to answer since the economic deck is stacked against them.

Unlike members of my generation, or even the Baby Boomers, who can fondly recall the days of booming stock markets and real estate values, Millennials have witnessed both the bursting of the tech bubble and the onset of the Great Recession caused by the collapse of the financial industry and housing market.

That means that they have been shut out of the two major growth factors most commonly used to build wealth: the stock market and real estate. Compounding the issue is the fact that this generation is graduating college with more student loan debt than every other preceding generation combined. There is now more outstanding student loan debt (totaling $1 trillion to date) than credit card debt!

Millennials also face a competitive labor market and a lack of job stability. In order to land jobs, many have moved into cities – where the cost of living has soared compared to their pay, forcing many young people to turn to their credit cards to make up the difference.

This perfect storm of factors – flagging economic prospects combined with increasing debt – has resulted in a generation of people who consider it nearly impossible to save. For them, owning a home or contributing to their 401(k) plan seems out of reach because they simply can’t afford it.

Listen to Barry’s Millennials and Money interview on WTOP radio

The Consumer Financial Protection Bureau’s report, Millennials’ ball-and-chain:Student loan debt suggested that the debt held by Millennials has caused many of them to:

  • Put off home ownership
  • Divert money from retirement accounts
  • Rethink their ability to take small-business loans
  • Forgo securing car loans

When you add all this up, it’s easy to see why so many Millennials have thrown up their hands as if to say: “I’m so far behind, I can’t ever dig myself out.”

The good news is that there is a way out. No, it’s not an easy route or one that can be tackled overnight. But there is hope – and it all starts with making the psychological adjustment to appreciate that big things start small. In this case, that might mean putting aside $50 a paycheck.

A Millennials Step-by-Step Guide to Cut Debt and Save More

Creating a financial plan that helps you address your debt issues and includes a systematic savings plan will put you firmly on the path to building up significant financial reserves over time. To do that, bone up on some of the basics when it comes to your personal finance options using guides like this Millennials Guide to Personal Finance.

Think of it as just taking one step at a time. While you may think that it will take 20 or 30 years to see a difference, you may be surprised how far you’ve come in just 4 or 5 years. Or, to frame that another way, that’s just about the same time frame as you invested in putting yourself through college. If you’ve made that investment of your time, I think you’ll find this next phase just as fruitful.

Step 1: Know Your Expenses

It’s been my experience that while most Millennials are acutely aware of what their income is, they spend far less time thinking through how they spend their money. In fact, a recent report by the American Institute of CPAs indicates that many young people are easily swayed by the spending habits of their friends. Remember when your mom would say, “If all of your friends jumped off a cliff, would you?” I think you get the point.

The first step, then, is to diagnose how out of whack your budget has become. Fortunately, technology can help. In our article, the Top 3 Financial Apps for Managing Your Money, we provide details of the apps we like best to do just that.

One of our favorite sites is, which links to all of your online accounts and automatically categorizes what you’ve spent money on and when. You can even create graphs to see how you’re doing over time.

Don’t forget to think through your living expenses, too, or consider cutting expenses by bringing in a roommate, for example.

The goal here is to come up with a plan to stop digging yourself deeper into a hole when it comes to your cash flow. Look at your spending habits and come up with ways to bring your expenses more in line with your income while still leaving room to put aside savings each month.

Step 2: Pay Off Your Highest-Interest Debt First

While it might seem obvious to do so, you should begin to use the new flexibility you’ve created by cutting expenses to redirect that cash to paying down any high interest credit card balances and loans. You simply cannot afford to pay 12-18% on credit card debt. As good as we are at Glassman Wealth Services, for example, we don’t have any product that offers a guaranteed return of 12-18%. That means it’s really, really expensive to carry that kind of debt and also why you need to pay it off as soon as possible. Hopefully, by having a plan and cutting expenses, you can get there sooner.

Step 3: Manage Your Student Loans

If your biggest hurdle is your student loans, you may want to call up the people who administer your loan and explain your situation. Most people don’t realize that lenders are willing to be flexible based on how much income you’re making. If your income is low, for example, they might be willing to waive interest on your principle for a few months or even for a year. The point is you have to ask.

Now, it’s also possible if not likely that no matter what you do today, you will be paying off those loans for many years to come. That’s OK! Another thing most people don’t realize is that you can still qualify for a mortgage even if you’re paying off outstanding student loans. In fact, if you have been routinely making your payments that would prove to a lender that you are a responsible borrower – something that could even help you buy a house.

Step 4: Engage the Autopilot

Once you’ve done the hard manual work of cutting your expenses and prioritizing your loans, it’s time to kick back and set up an systematic savings routine that puts money into your 401K or savings from your paycheck automatically. Even a small amount really makes a difference– especially if you start early.

Consider that, according to U.S. News and World’s article, 7 Ways to Retire with $1 million, if you were able to start saving $4,830 a year (that’s a little more than $400 a month) starting at age 25, you’d have $1 million by the time you’re 65. Conversely, if you wait to start saving until you’re 40, the yearly savings requirement bumps up to $15,240 a year (or $1,200 a month). Think about that and remember – it all starts with just one small step.

Step 5: Get Help

Now if even this simplistic plan seems too daunting given your current financial situation, it might be worth calling in reinforcements. Ask for help. Consider hiring a personal financial advisor from an organization like the Garret Financial Planning Network, which is made up of people who can help you create your financial wealth-building plan. Yes, it might cost you something like $150 an hour for their advice. But, again, think of it as an investment in yourself and your financial future.

Another great resource is Millennial Invest. Portfolio manager and author Patrick O’Shaughnessy is an expert in investment strategy and investor behavior. His book, Millennial Money: How Young Investors Can Build a Fortune is a must read.

The big takeaway for you in reading this story is simply that big things start by taking those initial small steps that will put you on a better path toward less debt and more savings. There’s no doubt Millenials face many challenges that those who came before them didn’t have to face. But the fundamentals of building wealth are the same for every generation – spend less than you make and do this for a long time.

Make your plan, adjust it and then stick to it. That’s the best way to reach the promised land of financial freedom.

What has worked for you to pay down debt and create more savings? I’d hope you’ll share your success stories.