The ability to manage money is one of the best paths to financial freedom. But many millennials struggle with finances, they often put off saving due to various distractions, like attending concerts, purchasing the latest gadgets, or renting a fully furnished apartment. Some may even make investments without understanding their portfolio. These situations can cause financial strain in the long run. So, millennials must avoid certain money mistakes to improve their financial status.
Ignoring budget
A common financial mistake made by most millennials is not setting a budget for one’s expenses. It is important for one to determine the monthly income and set aside a basic amount for their expenditures and savings. This way, millennials can assess the best ways to spend, save, and invest money effectively.
Overusing credit cards
Overusing a credit card is one of the leading causes of financial pitfalls among millennials. Credit cards can be beneficial for various reasons, including covering well-being expenses and buying groceries or gadgets on sale before payday. But if one does not monitor these spends, the balance can quickly exceed, which might be difficult to pay off at the end of the month. If balances go unpaid, one will be levied heavy interest charges. The longer one postpones the payment, the higher the charges will be. Debt accumulation can lead to significant financial problems in the long run.
Not saving for emergencies
Although credit cards can be useful for emergencies, it is important to establish a dedicated fund for unexpected expenses. Emergencies can occur in many ways, like replacement of a permanently damaged tire, plumbing and house repairs, among others. Setting aside money to cover these unprecedented expenses can help one make the ordeal less stressful.
Failing to account for small spends
It’s common for people, including millennials, to overlook minor expenses, like buying a coffee from their favorite cafe every morning. While the comforting cup of coffee may cost $5, this purchase can quickly add up to about $150 over a span of one month – a significant amount when viewed in the context of budgeting. By accounting for these costs, one realizes that reducing these small spends can lead to substantial savings over time.
Lack of retirement savings
The lack of a future financial plan is another saving mistake millennials make over the course of their life. One must think beyond a month or year and ensure a well-planned financial strategy is in place. Analyzing the big picture also helps with day-to-day financial management, making the process more impactful. It is recommended to save at least 15% of the income each year in a tax-advantaged account, such as an IRA or 401 (k) – including any match or contribution from the employer. One could even start with a lower percentage and gradually increase it.
Lack of funds for automatic payments
Setting up automatic payments is a smart money management habit for millennials, especially if they have a good grasp on their spending habits. One can set up automatic payments for expenses susch as cellular plans, utility bills, and other necessities, as well as for saving plans. However, one must avoid spending the money from the account linked for these deductions. Insufficient funds may result in missed payments, which could accrue additional charges.
Spending excessively on housing
It’s common for millennials to have lavish money-spending habits even when it comes to the home they live in. For instance, one might rent out a massive apartment, even though they do not require it and have a low income. Having a lower income will result in them exhausting most of the it on the apartment, with barely anything left for savings. The national benchmark is to spend no more than 30% of gross income on rent or housing. But one’s housing expenditure will depend on their financial situation. Younger individuals may have a high educational debt, which may restrict them financially. To save money on housing, millennials can consider living with their parents, finding a roommate, or looking for special promotions or lower interest rates offered by landlords and rental agencies.
Being conservative with investments
Millennials might be cautious when it comes to investing in the future. But if one has long-term goals, such as retirement, being too conservative may lead to missed opportunities for a better investment mix. One must ensure they diversify investments across different asset categories. For instance, holding a combination of bonds, stocks, and short-term investments can help reduce the level of risk in the portfolio while maximizing returns for that level of risk. A well-balanced investment strategy takes into account factors like investment horizon, risk tolerance, and individual financial situation.
Ignoring taxes
Many millennials may delay paying taxes for years because of their current financial status. But taxes are linked to one’s credit score, and failing to pay them on time can adversely affect the score in the long run, which can hinder one’s access to other investments or financial avenues.
Not hiring a financial expert
If one attempts to improve and settle their financial mistakes but still sees no progress, they must seek expert assistance. An expert can evaluate their financial situation and suggest ways to improve it, including strategies for paying off accumulated debt, making high-gain investments, and increasing savings.
