After working with over 100 millennial households over the past 4 years:
- Some high income
- Some low income
- Some business owners
- Some w2
I have learned many make the same costly mistakes. One’s that you can avoid by learning!
Here are the 11 most costly you need to avoid.
1) Spending More Than You Make
Too many people try to live lavish life styles they can’t afford. And I am going to be real with you, this is the quickest way to financial ruin. If you want to achieve anything financially, live a lifestyle in line with your income. Or even better, below it.
2) Inflating Their Lifestyle Too Quickly
This goes hand in hand with #1. Many start to see their income go up and they get the nicer car, house, clothes, trips, etc. and before they know it they have grown their income by $30,000 but their expenses by $50,000.
Some lifestyle inflation is okay, but you should be growing your income at a faster rate than you expenses. Set investing and saving targets based on percentages to ensure this happens and even increase them every year.
3) Not Automating Their Finances
Most millennials have income come in monthly and then spend it on whatever they want that month. Then, if anything is leftover at the end, they send it over to their savings. This is not what leads to saving and investing well.
Figure out your average monthly income and spending and automate that difference towards your goals right away. Then spend what is left in your checking account every month. It does not need to be difficult.
4) Sitting On Too Much Cash
Many have no idea what to do with their extra money, so they just let it pile up in their checking account. For 1, this is not safe. And 2, cash is losing value everyday. If it is not on the sidelines for some goal, invest it for the future.
5) Not Having The Proper Insurances In Place
As you buy a house, start a family, etc. insurance becomes essential to ensure they can have the same life whether you are here or not. You need life insurance, and probably more than you think. At least 10x income is a good rule of thumb.
Additionally, you need to consider disability insurance to ensure your income is there even if you can’t work. This might seem unlikely, but you are way more likely to have an injury put you out of work than you are to die early. You also need to consider umbrella insurance, homeowners/renters, etc.
6) Not Having An Emergency Fund
We all want to invest and get as much money into the market as possible. But having cash on the sidelines for unexpected events in crucial. You don’t want to sell investments or swipe your credit card for emergencies.
7) Speculating Instead Of Investing
Many chase extremely high returns by speculating instead of investing in good companies, ETF’s, etc. This is a quick way to lose a lot of money in the long run. You need to understand the difference between the two.
8) Focusing On Income Over Equity
Equity is the key to building a lot of wealth. We all need income to live on, but equity builds serious wealth when done right. Focus on building equity over time to grow your wealth.
9) Not Getting Estate Planning Documents Done
This is so overlooked today. You need to have these so your kids go where you want, your assets go where they want, & so you have a medical power of attorney, etc.
Trust&Will is a great way to get this done in an affordable way.
10) Not Maximizing Your Employer Benefits
401(K) match, disability insurance, HSA and HSA match, ESPP plans, etc. are all ways your employer pays you. Many of these you need to select and take advantage of. If you don’t, you are leaving valuable money on the table.
11) Overspending On Big Ticket Items
Many spend way too much on cars, houses, etc. forcing you to have little money available for variable expenses, saving, investing, etc. Make sure you don’t overcommit to an expense that will be hard to mange later on. And be careful doing this thinking the cost will go down later on when interest rates drop, who knows when that will come!
These are 11 of the most common mistakes I see millennials making. Avoiding these will put you in a great spot!
Disclaimer: None of this should be seen as advice. This is all for informational purposes. Consult your legal, tax , and financial team before making any changes to your financial plan.