The financial needs of Millennial women are much different than the financial needs of their mothers and grandmothers. While the basic principles of finance remain the same, the path to reaching financial goals and navigating through a weaker economy than our country has seen in decades – millennial women face a completely different set of challenges. Here are the top five money tips for millennial women to help get them on a path that is financially sound:

1. Start saving for retirement early

The earlier you can start saving, the better. The compounding effects of interest on your money over time will allow you to save more money than you could on your own. Think about the following example: Janet and Heather start putting $300 per month into their retirement accounts for the next 20 years. Both accounts earn 4% interest each year. Heather is 25, and Janet is 45. So at the end of that 20 year period, Janet will need to start taking her money out for retirement. Heather still has an additional 20 years for her money to earn interest. So even though they put the same amount in and earn the same interest rate, Heather, who started saving at age 25 will have more money in her retirement account because it has longer to earn interest on the entire amount.*

2. Work to build good credit early

While it may sound counter-intuitive, get a credit card or small loan. Almost all of the advice you hear says to stay out of debt, and that is true; however, carrying a small balance on your credit card or getting an auto loan can actually help you earn a higher credit score. How does it work? If you have a credit card that you use each month to charge your groceries and gas on, it will report to the credit bureau, and then when you make your on-time payment each month, that will also be reported to the credit bureau—which will start to build a positive credit history for you. Having a history of on-time credit card, student loan, or auto loan payments will increase your credit score and give you the ability to qualify for lower rates on other debts you may incur, such as a mortgage if or when you decide to buy a home.

3. Be careful of the amount of debt and the type of debt that you take on

Some types of debt are good, and some are not. Having a credit card to carry a small monthly balance and making on-time payments to build good credit is a good type of debt. Taking out a mortgage, which gives you tax-deductible interest is a good type of debt. Using credit cards to pay for items you can’t afford and running up thousands of dollars in debt is bad debt. These examples may seem obvious. But what about debt that is less easy to identify? For instance, taking out college loans to advance your education is a good thing—and they are typically tax deductible. However, if you are planning to take out large amounts of debt for college, you have to think ahead to the type of job that your degree will be able to obtain. What is the job outlook in the field you are pursuing? What is the average salary in the field you are pursuing?

4. Have a plan to pay down college debt and other large personal debt

Any type of debt that you do take out, you must have a plan to get it paid off. Many credit cards have very high-interest rates, so much of the monthly minimum payment will only be going to pay off interest. Even though college loans give you a tax break and are usually for a fixed rate and term, you can still cut down on the interest and time that you have to pay on this type of debt. Simply put an extra $50 each month, or whatever amount you are comfortable with, toward the principle of the loan, and that will greatly reduce the number of payments and amount of interest you will have to pay overall.

For example, let’s say that Laura and Jamie both have $13,000 in student debt with an 8% APR and a minimum monthly payment of $300. Laura pays only the minimum, while Jamie pays an extra $50 each month. It takes Laura 70 months – almost six years – to pay off her student loans, and in total she makes more than $20,849 in payments. Jamie, meanwhile, pays off her student loans sixteen months sooner, and only pays $18,906 over the life of her loan.

5. Build your career as soon as possible

Yes, you are young and have plenty of time to build your career, but don’t feel like you can’t start climbing the ladder in your early and mid-twenties. There are always plenty of opportunities for skilled and educated workers, of all ages, to earn promotions. Excelling early in your field can also lead to other opportunities later on—such as consulting, freelance work, or even starting your own business.

*Hypothetical (chart/situation) for illustrative purposes only and does not represent actual or future performance of any specific product or investment strategy.

Katie Moore, CDFA, a Financial Planner and Certified Divorce Financial Analyst with Finivi, is passionate about empowering savvy independent women, and women in transition due to a divorce, the death of a spouse, a career change, or other significant life event to expand their knowledge and build their confidence regarding money and investing.

To see how I may be able to assist you in determining the Social Security claiming strategies available to you, and how to best maximize your lifetime benefits, call me at (800)530-6635 for a complimentary consultation or click here to schedule online.