Hint: it has nothing to do with avoiding avocado toast.
Recently, a young self-made millionaire made headlines by admonishing millennials to skip the avocado toast and lattes in order to save more money. His advice was to instead invest in real estate, which, unsurprisingly, is HIS business. While there’s no doubt that saving a little bit here and there might help, the bigger issue is that no amount of saving on the small things will replace improving the financial fundamentals. This is true even if you’re just starting out in life, don’t make a lot of money, or prefer to take a hands-off approach to the complexities of money management.
The claims from Mr. Avocado Toast Guy got debunked pretty quickly, with Bloomberg noting that millennials are actually better savers than most and are a hard-working generation. In fact, 74 percent of millennials living at home are either working or going to school full time. The New York Times fact-checked the “avocado toast” comments and reported on the social media blowback. One frustrated millennial tweeted that a serving of avocado toast costs her $1.65, or one-477,896th the average price of a home in Brooklyn, highlighting the absurdity of the “avocado toast plan” as a long-term savings strategy. That math just doesn’t work.
Lovers of avocado toast or not, millennials are a hard-working, savings-oriented generation, who – like everyone else – desire to get ahead over the long term. Rather than saving on small expenses, the millennial generation needs real tools to manage their finances in an increasingly complex environment, even if these consumers are “hands-off.” When it comes to finances, hands-off consumers don’t like to track expenses, do not make detailed budgets, and would rather be doing almost anything else than managing their money.
Self-styled experts like Mr. Avocado Toast claim to have the answers. Their advice: make a budget and track it religiously and spend less on lattes, and you’ll be a millionaire soon. In addition, they admonish young people to save for retirement immediately, or they will die poor and alone. Well, what works for some may not work for all, and I had a chance to talk to Colin Walsh, CEO and Co-founder of Varo Money, Inc., a fintech startup, who is building a next-generation digital bank. Walsh doesn’t see the situation as nearly so dire, and Varo’s smartphone app for financial management is designed to help hands-off consumers get ahead…and do so with only a few screen taps.
Walsh, an expert with years of experience in developing financial products, says that millennials don’t need a hard and fast budget to succeed financially over the long term. “You can still buy the avocado toast and lattes, but fix your financial fundamentals first,” he observes, adding that most millennials, even those who are creditworthy and high-income, still live paycheck to paycheck and can't start saving for big milestones until they first stabilize their cash balances. “Put an emergency fund together before you start thinking about retirement, and put some management tools in place, even if you’re a typical millennial who doesn’t really like budgeting or thinking about money. Then go live your life.”
For millennials who are hands-off financial managers, Varo offers some basic, actionable advice that will make life easier, starting with making sure you can see all your money in one place and tracking your spending with an easy, straightforward approach. Step one is simply subtracting your bills from your bank balance. Varo can help to automatically put aside money for a “rainy day” fund and set attainable, short-term savings goals for fun experiences like travel and dinners out. Finally, Walsh recommends checking on your bank fees to make sure you aren’t overpaying, and ensure that you have access to low-interest credit in case you ever really need to cover a cash gap or have an emergency.
According to Varo, pinching pennies isn’t the answer – having a sound plan IS. A solid financial plan and the tools to execute it mean that people can go live their lives – take that vacation, enjoy that fancy dinner, attend that music festival and, most importantly, enjoy a latte and that avocado toast with no regrets!
Accompanying Listicle: Unconventional Financial Advice for Millennials
- Don’t budget, automate – If you’re a hands-off person, do the work upfront but put some automated tools into place that will help you manage your finances with just a few taps
- Don’t stop believing (and don’t stop buying your lattes and avocado toast) – Spending less on lattes and salads doesn't build wealth – but fixing your financial fundamentals does
- Build an emergency fund – Don’t even worry about retirement until you have an emergency fund set aside and cash balances stabilized, which is typically three months’ worth of income
- Make savings automatic, and make it a habit – Deductions from your payroll check that go straight to savings are an easy and painless to build your nest egg, and setting aside cash in an envelope or a cookie jar is a great way to pay for those occasional nights out
- Watch out for high interest and fees – Make sure that your credit card or loan interest rates and bank fees are as low as possible, and remember that you might be able to refinance through lower-cost credit products
- Go live your life – It’s important to set short- and long-term financial goals. But it’s also okay to go for that vacation, fancy dinner, or music festival!