Financial Planning, Millennials

9 Biggest Mistakes Millennials Make Financially

As a millennial, you often hear Boomers and Gen X-ers talk about how we are terrible at managing money as if they had it all figured out when they were our age. The thing is, they didn’t. Many of them made mistakes just like us. It’s a part of growing up. However, we have the opportunity to learn from the mistakes of those who came before us. Here are 9 financial mistakes you as a millennial can easily avoid,

  1. Not Tracking Spending 

It is easy to get caught up in everything that is going on in life and forget to track your spending. But with today’s technology, there’s no excuse not to. You can make it easy for yourself by using an app to do it. This not only allows you to see and understand where your money is going, but it also can help keep you accountable when your spending gets out of hand. 

Check out my post on budgeting if you want to learn more on how to do it yourself and for some of the best budgeting apps! 

  1. Delaying Saving for Retirement Until All Debt Is Paid Off 

Millennials have more debt than any other generation did at the same stage of life. College expenses are inflating at nearly 8% per year, and wages are not following anywhere close to that. As much as debt may feel like a huge burden on you, it is typically not in your best interest to neglect saving for retirement. The longer you delay retirement savings, the harder it will be to reach the amount of money you need to retire.

The point is, try to work on paying off debt while also saving for retirement so compound interest can work for you.  

  1. Not Taking Advantage of Your 401(k) 

The days of pensions being your retirement are over. The new norm is 401(k)’s, and they are the government’s way of incentivizing you to save for retirement. One misconception I often hear is that people choose to not contribute to their 401(k) because they think they can’t bring their 401(k) with them if they were to get a new job. THIS IS NOT TRUE. The contributions you make to your 401(k) do not just disappear when you leave. That money is yours and you have plenty of options on what to do with it if and when you leave. Consult an advisor to figure out what the best option for you might be. 

Think of it this way, if you are not contributing to your 401(k) and your employer has a match, you are missing out on a large amount of your compensation. If you make $100,000 a year and your employer has a 6% match and you choose not to contribute any, that means every year you don’t maximize your employer match, you will miss out on $6,000 your employer would give you towards your 401(k). Don’t leave that money on the table!

  1. Being Too Conservative or Too Risky With Your Investing 

With the accessibility of investing, many millennials are choosing to do it on their own. For some people this is great, but for others, it can lead to problems. There are countless stories in the media of young investors choosing to try high risk investing strategies and ending up in a really bad place. Remember, investing is not gambling! Keep it simple. 

As you can tell, taking too much risk can lead to problems, but so can taking on too little risk. If you choose to leave your large sums of money in a bank account and not invest, you will end up missing out on long term growth in the market. And, on top of that, inflation will be eating away at those dollars making them less valuable. Figure out your risk tolerance and then invest according to that to prepare for your future! 

  1. Living Above Your Means 

Keeping up with the Jones’ is a real thing. Everyone wants to have trendy clothes, a nice car, and fun trips to talk about. The problem is we don’t all have the same income. If you are constantly worried about having the next cool thing, it will make it hard to live below your means. Ultimately, the key to feeling ‘financially free’ is to consistently spend less than you make and live below your means.  Figure out the few things you truly care about and spend the extra money on them and then lower spending on things that don’t actually matter to you. 

  1. Buying a House At The Wrong Time 

“You’re throwing away your money if you rent.” We have all heard people say this. But, it’s not that simple. With closing costs, paying realtor fees, taxes, up-keeping, and how mortgages work, it typically does not make sense to buy a house unless you are going to live there for awhile. If you are curious to figure out what ‘a while’ is for you, factor in closing costs, realtor fees, interest rate on the mortgage, appreciation of the house, time living in the house, taxes, costs to fix up the house, etc. 

Also, if you are new to a city, take some time to get to know the area and make sure you like it before buying a house. Once you know you love the location and want to be there for the long haul, start looking to buy.  

  1. Having a Family but Not Having a Will Put In Place

Estate planning often gets swept under the rug and pushed off until later. The problem is, later never happens. Go get your will done now! It is one of the most important things you can do for your family. A will allows you to choose who would care for your children, where all your prized possessions would go, and ultimately lets you avoid probate. 

  1. Not Insuring Against Proper Risk 

If you are anything like me, your parents have been telling you since high school that you are not ‘invincible.’ And as much as it feels like we are as invincible, we are not. Things happen in life that are unexpected. As horrible as these crazy situations are to even think about, imagine if it actually happened to you. Life would change. Maybe you wouldn’t be able to work. Maybe you would no longer be here with your family. None of us want to think about these things happening, but the truth is that they do happen. Make sure you get the proper insurances in place so that if something does happen, you and your family are protected. 

  1. Not Having a Plan In Place

There are certain situations in life where winging it actually works. Personal finance is not one of them. The most common thing we hear as advisors from older clients is “I wish I would’ve started planning sooner.” The earlier you start planning for retirement, a house, kids, etc. the better. 

I always like to compare it to someone trying to get in shape and lose 20 lbs. Would you just show up at the gym and then all of the sudden be 20 lbs lighter and then stay in that shape for years to come? No! You would need to create a nutrition plan, a workout plan, a cardio plan, and then actually go out and do it while making changes to your plan as injuries and soreness occur. It would be hard even with a plan. 

Plans are crucial to reaching your desired outcome! Do your best to get a plan in place early and then tweak it as your life changes. 

We are always told that history repeats itself if you do not learn from it. Well, let’s learn from the generations above us and not make the same mistakes they made.

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