We’ve all made money mistakes- but the problem is repeating those same mistakes over and over again. A bad financial habit can spiral into growing debt and other long-term financial implications. The newest generation of adults entering the financial world, millennials, are eager to achieve financial freedom, but often times stumble into various pitfalls that can lead to devastating consequences for their financial future. Here we discuss some of the most common money management mistakes made my millennials.
1. Spending Beyond Your Means
One of the most common mistakes millennials make is living well beyond their means of support. This is problematic because living below your means is essential to building long-term savings. Many millennials are finding themselves in serious debt at a young age. Excessive debt, and the possible credit problems that it can bring, can cause consequences for years, such as problems borrowing money, higher interest rates, and the constant stress of just trying to get ahead financially.
Financial freedom can’t be achieved without spending less than you earn. This is more than just cutting costs and saving money. It’s about taking control of your money, so it doesn’t control you. Spending less than you earn doesn’t mean you can’t have nice things. It simply helps you prioritize your spending by placing a higher priority on saving than spending. This is an essential part of getting out of debt, building wealth, and achieving financial freedom.
2. Not Staying on Top of Your Credit Score
Building a credit history and maintaining a good credit score are crucial components to a strong financial future. Millennials especially need good credit in order to qualify for mortgages, auto loans, preferred insurance rates, and more.
To maintain a good credit score, aim to keep your credit utilization less than 30%. That means using less than 30% of the total credit available on an individual card. When you exceed 30%, this might cause your credit score to drop. It's important that you also check your credit score on a regular basis. Research has shown that frequently monitoring your credit can help lead to a higher score. The rule of thumb is that a credit score should be checked at least every six months so that any errors can be disputed, problems with credit can be addressed, and you will be alerted to any possible misuse of your credit or accounts.
3. Not Creating or Sticking to a Budget
Budgeting may not be the most exciting thing to do with your spare time, but it’s a vital tool to help secure a solid financial future. Many millennials have the mindset that a budget equals deprivation when it actually can reduce stress and help put you on a better path to achieving your financial goals. It is critical to create a budget that sets limits for all of the expenses and even more crucial to stick to these limits. When budgets are not adhered to, card balances will rise, and savings will be depleted, slowly putting financial goals in jeopardy.
4. Not Saving for Retirement
Even when millennials have a budget, they may not set aside money for their retirement savings. While retirement may be the furthest thing from their mind, investing in a retirement account early cannot only help ensure that you have the proper funds that you will need for your retirement but also allow your money to grow longer. This means a better return on the money than would be gained by investing it later in life. For millennials without a lot of expenses, the best route may be to invest up to what the company will match.
5. Failing to Plan for Emergencies
Life is full of curveballs. When an emergency happens, it can have significant consequences on our financial health when we're not properly prepared. This is why a cash reserve is so important. A cash reserve allows you to be better prepared for unexpected costs without having to go into debt or interfere with other investments or savings accounts. A good rule of thumb is to have at least three to six months worth of income in savings, and it's important to replenish the funds once they are used.
6. Lack of Understanding of Money Basics
“Knowledge is power.” You’ve heard this a lot. When it comes to your finances, this old saying couldn’t be more true. Unfortunately, most standard curriculums in public schools no longer teach financial literacy skills. These courses used to teach students about the basic money concepts such as debt, credit, and interest, to help them learn how to manage money and make smart financial decisions. With many schools abandoning this curriculum, millennials are now forced to learn these concepts on their own or seek help.
Whether it is a lack of understanding finances, failing to plan, or overspending, millennials succumb to many mistakes when it comes to finances. The best way to avoid these common mistakes is by understanding them and continuing to seek education on money management to help secure a financial future.
Check out our blog on the importance of financial literacy to learn various ways of improving your financial knowledge.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.