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Millennial financial health hinges on friends

(MoneyWatch) If you are between the ages of 24 and 35, your financial health is likely to rely on who your friends are, according to a new survey by the American Institute of Certified Public Accountants and the Ad Council.

More than three-fourths of young adults say that their friends' financial habits determine their own. Two-thirds say they're stretching to keep up with where their friends live, where they go to eat, how they dress and the gadgets they buy, according to the survey.

The disturbing result? One quarter of adult millennials have missed a bill payment or have been contacted by a collection agent. Almost half have used a credit card to pay for necessities, such as groceries or utility payments. And 61 percent are still getting financial help from their parents.

"Be careful about the company you keep," says Ernie Almonte, chairman of the AICPA's National Financial Literacy Commission. "Many young adults are building financial foundations with the wrong blueprints."

The AICPA and Ad Council have created tongue-in-cheek public service advertisements to counteract the bad peer pressures and have launched a website, called Feed the Pig, to help the generation get off to a better economic start. However, if you want to make it simple, there are the six simple things you must do:

Set goals

Now is the time to figure out what you want and how to get it. Write down the things that are precious to you. These goals don't have to be only about finances. If your goal is to travel or have more freedom or have a baby, for example, you may not consider it a financial goal. But, of course, it has an economic cost. Writing down what's precious is the first step to determining the costs and setting yourself on a course to get what you want when you want it.

Give yourself a deadline

To figure out what you need to save each month to accomplish a given goal, you need to know its expected date of arrival. If you want to get a $300 phone (and don't want to go into debt to get it), for example, it will cost you $100 in savings each month for three months. Can't afford that? Then figure you'll buy it in six months and save $50 a month -- or in a year at $25.

....And calculate a price tag

More amorphous goals -- such as having more freedom or having a baby -- require more thoughtful consideration. You need to ask yourself what it would take to be as free as you aim to be. Is this about having month-long vacations or is it about having the ability to quit a job that you hate? Once you figure out the detailed definition, you can put a price-tag on your goal. In this case, the first goal is likely to cost one month's wages, plus the cost of travel.

The second can be addressed with a larger-than-average emergency fund -- an amount equal to about six to 12 months of living expenses in a savings account to support you while you look for new work.

If the goal is having a baby, again, you need to dive into the details of what that means to you to figure out the cost. Does having a baby mean you're staying home and living on one income? Or does it mean that you're dealing with the incremental additional costs of daycare, food and diapers? Either goal can be accomplished, but only if you make it detailed enough to estimate the price.

Share your dream

Since millennials are a highly socially-connected generation and likely to care deeply about what their friends think about their ability to keep up -- at least according to the survey -- tell your friends about the goals that are most precious to you. It's a lot easier to explain your dingy one-room apartment and dented 1967 Toyota when you explain that you're saving every dollar for a much bigger goal than the latest iPhone. You never know, you might become the most influential millennial in your group.

Track your spending

Naturally, accomplishing financial goals means learning to live on less than you earn. The best way to do that is to see where you're spending money now and where you can easily cut back. Track your spending to find black holes, where money drips out inadvertently or in greater quantity than necessary. You shouldn't give up the things that are truly precious to you. But if you find that you're spending hundreds of dollars a month on things like shoes or entertainment, you need to consider if that item is worth the amount you've devoted to it. If it's all precious to you -- and it's more than you can afford -- you may need to get a better job or a reality check.

Put long-term on your radar

At your age, there are a lot of short-term goals that are important -- getting a house, a car, starting a family, just to name a few. It's easy to say that you'll save for long-term goals later, when today's needs aren't so pressing. Unfortunately, every age has its own set of pressing short-term goals. At 35, you're likely to earn more, but might have kids and need to pay for daycare or private schools or art lessons or tournament sports teams. Worse, every year that you fail to save for long-term goals, you give up the power of compound interest. And compound interest makes it far easier to accomplish long-term wants.

Consider this: If your goal is to have $1 million saved for retirement, all you'd need to save is $160 a month when you're 25, assuming a 10 percent average annual return (which is roughly the long-term average stock market return, according to market researchers at Ibbotson Associates in Chicago) to have over $1 million at age 65. Wait just one decade to start saving and you'll have to put away almost three times more -- $450 a month -- to accumulate the same nest egg.

To be sure, retirement is a long way away. Save a little today anyway. You'll be glad you did.

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