7 Financial Mistakes Millennials Make
It is well known that a person is primed for financial success in their 20s to 30s. It is within this age range that an individual has the greatest potential to earn money, invest, and grow their savings.
Unfortunately, however, the educational system fails to instil the advice that millennials need to take advantage of this phase in their lives. As a result, a lot of them make financial mistakes that can affect their ability to pay their rent and save enough to retire early.
Fortunately, these common financial mistakes are avoidable. By being aware of the mistakes and spotting them early, you can avoid the pitfalls that can derail millennials from the track to financial success.
Falling Prey to Peer Pressure
There are many money mistakes to avoid in your 20s, but avoiding the purchase of expensive status symbols is perhaps the most relevant.
The quote that best describes this tip is:
"Too many people spend money they haven't earned, to buy things they don't want, to impress people they don't like".
While nobody knows who coined this saying first, it is commonly attributed to Robert Quillen, a famous writer.
A survey shows that over three quarters of millennials feel pressure to keep up with friends' spending habits. They want to have the same gadgets, cars, trendy items and other consumables as their friends.
Regardless, remember this saying when you are deciding whether or not to purchase something. If you are buying a Siberian husky puppy just because it's currently popular thanks to the hit HBO drama, Game of Thrones, you should know that the decision will cost you thousands of dollars over the dog's lifespan.
Neglecting Health and Family
Although it's sensible to work hard and try to use your energy reserves and youth to your advantage, if you neglect your family and health you could end up burning out from the stress, frustration, and pressures of everyday work.
Putting money first and forgetting everything else is perhaps the most common money mistake people make, especially millennials. Between the ages of 20 and 30, people are more confident of their mental and physical abilities: it's when millennials think they are untouchable.
Unfortunately, no amount of money is worth sacrificing your health, familiar relationships, and life experiences. Working 80+ hours a week might double your output, but it can also cause your health and relationships to deteriorate twice as fast.
Paying Debt First
If you direct all your available cash towards paying off student loans, you could end up not having enough money saved for retirement.
While student loans aren't a joke and should be paid right away to avoid interest from accruing, you should also allocate a portion of your monthly income to retirement savings.
The general rule of thumb is to secure an employer-sponsored and -matched 401(k) (retirement savings) plan and start contributing as much as you can. If you don't have the option to contribute to a retirement plan, be smart about where you allocate your available funds.
For instance, if your student loan or credit card debt is at 6 percent or less, you could end up making a higher return if you invest money in more aggressive long-term assets, such as dividend-paying stocks or cryptocurrencies.
Being a Too Conservative Investor
Research indicates that millennials are less likely to have basic investment know-how compared to older generations. As a result, they end up being too conservative and hesitant to invest in financial markets and assets that are more complex and aren't as safe as your traditional stock and bond mix.
Some even avoid investments altogether and instead park their cash in a savings or checking account that grows half a point in interest each year. These money management mistakes can be avoided by learning more about certain assets or using the services of a financial advisor to clear up the fog that's been preventing you from investing more aggressively.
The time between 20 and 30 years of age is a great time to take risks. You have the time to repair any financial damage that a failed start-up or a bad investment leaves behind.
Adulting When Not Ready
Research shows that millennials in general are choosing to delay some life accomplishments that are linked to adulting, such as getting married and buying their first home.
Being an adult is a rewarding and satisfying feeling but, even when the timing is not right, some millennials give in to peer pressure, leave the comforts of their parent's home and start a family of their own.
If you don't have the financial firepower to start living an adult life, you shouldn't feel bad nor be pressured into making these life-changing decisions yet.
Not Using Technology
You could spend all night punching in numbers on your handy calculator, but traditional financial tools simply don't cut it anymore. Make use of technology to simplify the process of keeping track of your personal finances, including your monthly income and expenses.
Ignoring the benefits that digital tools, such as online budget planners and investment apps, bring to the table can affect your ROI over the long haul.
Use a budget planner online to make monthly plans, track them at a higher level that's easier to understand, group expenses into more intuitive categories, and get actionable spending tips.
Having Too Many Things on Their Plate
Millennials are perhaps the first generation to have been exposed to what society now acknowledges as modern technology. And, as many statistics and reviews can attest, this generation is addicted to technology and the opportunities it brings.
Millennials are spending too much money on too many activities, from signing up on Groupon for some kickboxing lessons, to moving on to a new hobby the following week. They also spend too much on consumer goods, such as content on demand services like Netflix.
When it comes to investing, they diversify into too many baskets, buying into the newest company to launch an IPO or the latest cryptocurrency to pop up.
While you are encouraged to take risks and be proactive with growing your money, you should try to direct all that energy into actual things that produce.
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These financial mistakes are the biggest ones that millennials have been found guilty of. If you can avoid them, you'll be better off than the 25 percent of the millennials in the US that are currently experiencing financial stress.
About the Author
Paige Ellingson is a graduate in business and communication who recently works as a creative content executive, and currently based in SE Asia. She enjoys writing about personal growth and startups for the most part in her writing journey.