Being free from the financial support of parents is one of the defining characteristics between an adult and a child. Living paycheck-to-paycheck, as many Millennials do, doesn’t make this easy. But gaining independence should be income-driven rather than frugality-fueled. While spending frivolously is never advisable, cutting back on your Starbucks intake isn’t going to make your fortune. Accumulating wealth requires broader, long-term thinking.

For instance, if you’re making $30,000 a year, it will be nearly impossible to amass a large sum of money – even if you were to save all of your extra pennies. Focusing less on being stingy and more on broadening your earning capacity – via education or work experience, for instance – can help increase your worth and broaden your income horizons.

 

Getting Out of Debt

Paying off student-loan debt has become increasingly difficult for many who are struggling with unemployment and low-paying jobs. While it’s natural to make a priority of paying debt off as soon as possible, that may not be the best course. You need to have your money working for you, too.

One approach is to leverage what funds you have: Extend your college-loan repayment period to lower your monthly payments and use the extra cash to start building a retirement nest egg. In your 20s, you’re at the time when compound interest is most in your favor because you have decades for even small amounts of money to grow. It’s also a good time to take risks because if an investment does tank, your portfolio has time to recover from losses.

Also, being in debt is not all bad. In fact, certain sorts of installment debt – like student or auto loans – can be useful. As long as you pay them in a timely, regular fashion, they help you establish a good credit history. You need a good history and credit score to obtain everything from a residential lease to a bank loan (and the most favorable interest rate possible for it).

Not only is it OK to have the right kind of debt, but it can also make a lot of financial sense. Take a basic capital investment, such as a car. You could pay out $15,000 of your hard-earned savings to acquire the vehicle outright, or you could obtain a low-interest auto loan and pay it off in small, regular installments. This way, you can enjoy driving your own car while more of your cash remains available to put toward something else.

Many Millennials further incur credit card debt as they try to get themselves established during adulthood. Paying your monthly credit card bills on time is crucial to building your credit rating. Try to pay your bill in full at the end of each month to avoid racking up interest charges that can quickly snowball. Also, having several cards (but not owing anything close to your credit limit – charge no more than 35% of your limit on each card) will help your credit utilization ratio. This percentage is another important factor when you’re being evaluated for a car loan or a mortgage.

 

Saving for a Big Purchase

Saving for big-ticket items, like a home of one’s own, is another goal. Unfortunately, lenders are imposing stricter guidelines for major types of financing, especially mortgages. Therefore, Millennials need to be able to make a substantial down payment if they want to purchase a home.

Back in the good old days, putting your hard-earned money in the bank was rewarded with decent interest rates that over time translated to an OK return. These days, the bank might be a safe place to store your cash, but it’s not necessarily the smartest place to put it.

Savings accounts cause you to lose money over time because their low-interest rates do not keep pace with inflation. They’re also subject to maintenance fees that can nibble away at your balance. It’s not terrible to keep a small emergency fund in the bank – after all, it’s still FDIC insured – but the bulk of savings should be elsewhere.

 

Planning for the Future

You’d think that retirement planning would be a no-brainer for this young group, which has watched parents and grandparents struggle so much with recessions, saving money and real estate booms and busts. They should know that Social Security and company pension plans are no longer reliable retirement income options – especially the latter, as private-sector employers eschew defined-benefit plans in favor of defined-contribution plans such as 401(k) plans, which shift much, if not all, of the savings burden onto the employee.

But they’re lagging behind. To be fair, the way retirement savings plans are currently structured makes it hard for younger people to put money aside: Contributions are voluntary, tied to your employer, and if you are lucky enough to have access to an employer-provided plan, you’re even luckier if your employer contributes anything (nowadays, a company match of 5% of the employee’s 401(k) contribution is considered a big deal – a far cry from the 100% that characterized matches in the 1990s). On top of this, the fraying of economic and social safety nets over the past 40-plus years has left retirement savings vulnerable to emergency withdrawals.