Despite older generations often teasing millennials for being “snowflakes” and not knowing how to take care of themselves, many millennials do work hard to find stability in our difficult economic climate. However, as is true of any generation coming into its own, they often don’t have the financial education to avoid mistakes that can tank their financial stability in the future. Here are ten financial mistakes many millennials frequently make.
Not Saving for Retirement
Many millennials are just now starting their careers, and, accordingly, saving for retirement is often last on their minds. From their perspective, they have plenty of time to put money away for retirement, so why save when you can have fun now?
What many millennials fail to comprehend, however, is that when it comes to retirement funds it pays to have a lot of time. That is, investing in retirement now will allow these young professionals to establish savings with compound interest. The earlier they start saving, the more money they will ultimately have when it comes time to retire.
Not Saving At All
In addition to not saving for retirement, many millennials simply aren’t saving at all. Millennials often think that since they’re not making a lot of money now, they can’t really grow their savings.
This shouldn’t matter, though. Even small savings still count, and it’s good to get in the habit of setting money aside each pay period. Eventually their paychecks will increase, they’ll start saving more money, and they’ll have solid finances sooner rather than later.
Not Building an Emergency Fund
Just as any young person in any previous generation, a large percentage of millennials think of themselves as being invincible. As such, they often don’t see the utility of an emergency fund.
But as we all know, emergencies are going to happen. Without emergency money set aside, many millennials risk great financial hardship or ruin if the worst were to happen at the wrong time. It’s advisable to set aside enough to live on for a few months should the unthinkable happen.
Not Getting Insurance
Insurance is a daunting concept to many millennials, but that’s no excuse to forego getting coverage. Health insurance, car insurance, and even life insurance are necessary to mitigate financial hardship.
Millennials need to understand that when it comes to these expenses they aren’t just shielding themselves from debt; they’re also shielding their loved ones who might be liable to incur the debt should the millennial be unable to pay.
Not Investing Enough
Saving is one thing, but investing has always been a foreign concept to 20-somethings, and just like the generations before them, millennials are weary to spend money on something they don’t completely understand.
This makes sense in light of the major market meltdown witnessed by millennials as they were entering into adulthood. However, millennials need to remember that the market will rise and decline, but has an upward trend in the long-term. Just like savings, the earlier you invest, the more you can grow your initial investment.
Taking On Too Much Debt
As discussed, millennials often delay financial responsibility because they think they have plenty of time to satisfy their financial obligations. This is true for taking on debt as well.
From the millennial perspective, large debts such as student loan debts don’t warrant too much consideration because they have plenty of time to pay if off. Accordingly, millennials will enter into loan agreements without hesitation and enter into debt that many will not be able to pay off anytime soon, potentially crippling their finances later.
Neglecting Credit Scores
Healthy credit is vital to major purchases later in life, such as buying a house or car. Unfortunately, many millennials find it difficult to envision being able to buy such expensive items. To them, credit is often only a tool to get by in between paychecks.
It’s easy, then, for millennials to ignore the importance of maintaining good credit scores. Millennials need to review their scores earlier on in order to allow time to make corrections before it’s time to make those major purchases.
Living Beyond Their Means
Millennials, being new to their careers and the benefits associated with those careers, are eager to spend their new wages. Consequently, it’s easy for them to get carried away and live beyond their means.
Low cost subscription services like Netflix or Spotify seem like a drop in the bucket individually, but it’s easy for millennials to overlook how expensive services like these are in the aggregate. Rather than prioritizing by need, they purchase everything and often struggle to stay afloat financially. Saving a small percentage of their earnings will allow millennials to easily live within their means.
Not Taking Free Money
As discussed, millennials are often too preoccupied with their new lives and their new careers to be concerned about saving for retirement. However, in addition to losing out on years of building a nest egg, millennials are basically turning down free money.
That is, while employer-funded retirement plans are gradually becoming a thing of the past, many employers still do offer retirement contribution matching. Every time millennials get paid and neglect to designate funds for retirement, they’re losing out on that contribution match down the road.
Neglecting Tax-Advantaged Opportunities
When millennials start their new careers, they’re often joining a new income bracket as well. It makes sense, then, that millennials are often not aware of the tax benefits available to them based on their new income status.
Millennials need to really work to understand how taxes work and probably should consult tax professionals to ensure they’re doing everything they can to maximize their tax benefits.
Millennials are just starting to find their path in life. Consequently, there are going to be many bumps along the way. It will take time for millennials to truly understand their finances and the associated decisions, but with a little more work now, they’ll be setting themselves up for stability in the future.