A Millenial’s Guide to Spending (And Saving) with Modest Wages

InvestmentZen uncovered the top occupations and the average wages for millennials. What’s the best way to divide earnings?

According to a recent survey conducted by Bank of America regarding millennials and budgeting, striking evidence was found that budgeting entry-level paychecks should be a more frequent conversation. 80% of millennials think that they will eventually be as well or better off than their parents, but more than half are still living paycheck to paycheck — and 35% are getting help from their families.

Stretching an entry-level paycheck in today’s world is a different game than past generations experienced. Even though Pew Research estimates real earnings for young adults with a college degree increased by $1,300 in inflation-adjusted dollars between 1984 and 2009, the cost of living has increased disproportionately meaning each dollar earned does, in fact, buy less than it did 20 years ago.

Much of the financial advice passed down from older generations seems less applicable to modern standards. Industries have changed, workplace standards have changed, and cost of living has changed.

So, what can millennials do if they are paying off debt, paying high rents, and living on modest wages? Let’s explore common industries millennials work in, and how to effectively divide a paycheck based on typical wages.

A Millennial's Guide to Spending (And Saving) with Modest Wages

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What are the top industries and professions for millennials?

We used Bureau of Labor Statistics (BLS) data to determine which industries, and specific professions within an industry, adults aged 20-34 are most commonly working in. We found the following as the most common industries and occupations for millennials:

  1. Professional and related occupations
    • 22.64% of working millennials
    • 2016 median wage $100,790

Specifically, software developers, computer systems analysts, and computer programmers. A 2015 study, by Young Invincibles, states that the unemployment rate for millennials was over 40% higher than the national unemployment rate.

Jobs in sectors like retail or hospitality offered fewer opportunities for professional growth. Sectors like STEM professions were, and still are, industries that hired and offered the best job prospects.

BLS predicts STEM careers, including math and science professions to grow about 13%  between 2012, and 2022. This growth could account for the rise of millennials working in the industry.

  1. Management, business, and financial operations
    • 12.29% of working millennials
    • 2016 media wage $66,530

Management level positions, especially for the older millennials is a large segment of the workforce. Management opportunities with high rates of millennial employment are finance managers, marketing and sales managers and food service managers.

  1. Office and administrative support occupations
    • 12.17% of working millennials
    • 2016 median wage: $34,050

Administrative assistants and customer service representatives are the most common professions in this category. According to the BLS, customer service positions are expected to grow 10% from 2015 to 2024. Customer service positions encompass nearly every industry from call centers to retail professions which makes the ability to land this career relatively widespread.

  1. Sales and related occupations
    • 11.91% of working millennials
    • 2016 median wage: $26,590

Specifically supervisors of retail sales workers, and retail salespersons. According to a PricewaterhouseCoopers LLP and NRF survey, retail is the largest private employer in the United States. Millennials are also the largest generation in the U.S. labor force. These factors combined make it understandable why retail falls as one of the most common occupations for millennials.

  1. Food preparation and serving related occupations
    • 8.27% of working millennials
    • 2016 median wage: $20,810

Cooks, waiters and waitresses are the most common professions in the food industry for millennials. There are varying reasons why this industry is common amongst millennials. One argument is that millennials obsess over organic fare, microbrews, and other food trends that attract them to enter the industry and revolutionize food.

Another argument is that about 40% of young millenials (18-24) are enrolled in college, and jobs in the food industry allow for schedule flexibility and accommodate a less formal skill background.

What are average wages for millennials in these industries?

According to BLS data, the average salary of 20-24-year-olds is $27,456 per year and older millennials, aged 25-34, take home $39,416 per year, on average.

How do wages differ by age groups, on average?

The same BLS data shows:

  • 16-19-year-olds make, on average, $21,840 per year.
  • 35-44-year olds make, on average, $49,400 per year.
  • 45-54-year-olds make, on average, $50,024 per year.
  • 55-64 make, on average,$49,608 per year.
  • 65 and older make, on average, $46,176 per year.

Wages ranging from $27,456-$39,416 don’t go very far when you need to pay expenses like rent, utilities, food and more. So, what’s the best way to divide your paycheck?

Tips for dividing a modest paycheck:

  • Pay yourself first – Warren Buffet has a great quote, “Do not save what is left after spending, but spend what is left after saving”. When you pay yourself you should be paying off debt, or adding money into your savings. Shoot for around 20% of your paycheck for this.
  • The essentials should cost about 50% of your paycheck. Essentials include housing, food, transportation costs and utility bills.
  • Personal spending – If you can stick to 20% savings and 50% essentials, you are left with 30% for personal, or discretionary spending.

Real world applications:

That is, if you’re making around $34,000 after-taxes, annually, this is how you should aim to break your paycheck up:

  • Essentials (50%): $17,000 a year, or $1416 a month.
  • Personal (30%): $10,200 a year, or $850 a month.
  • Savings (20%): $6,800 a year, or $566 a month.

Personal spending should be the first percentage to reduce if the essentials aren’t covered from this breakup.

While the 50/30/20 rule will put you ahead of the average millennial and on track for a standard retirement, if you save more aggressively, you can drastically cut down your years to retirement.

Mr. Money Mustache, a personal finance blog, explains the correlation between how much you take home each year, how much you can live on, and what that means for early retirement. The blog suggests, if you are spending 100% (or more) of your income, you will never have enough money to live on. On the flip side, if you are spending 0% of your income, you could theoretically retire now.

At a 20% savings rate, on a salary of $34,000, it will take you about 36.7 years before you can retire. If you can boost your savings up to 50% of your income, you will set yourself up for retirement in 16.6 years.

Assuming you can earn 5% investment returns after inflation during your saving years, and that you can live off of the “4% safe withdrawal rate” after retirement, kicking your savings rate up by as little as 5% can shave years off your working life. Refer to the infographic for a more detailed spreadsheet.

Methodology

  • The BLS current population survey estimates these occupations as some of the most occupied by millennials. Employed persons by detailed occupation and age -numbers in thousands.
  • The data is broken into 20-24 and 25-34 to encompass all millennials. To find our figure, we analyzed data separately for the two age groups, then averaged individual age groups for an overall most common occupations for millennials.
  • Our parsed data set found here
  • We used BLS data to find median salary

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