|Managing money can be a delicate balancing act. Planning for your future and enjoying the moment can feel diametrically opposed when it comes to finances. You’ve only got one life to live, so tickets for the latest concert, dinner out with friends and a new car in the here and now sometimes trump responsibly planning for your financial future.|
These are the top 10 financial mistakes millennials often make and how to avoid them.
1. Not Creating A Budget
Most people think of budgets as restrictive and uncomfortable. They tell themselves they don’t need one because they make a good living and in reality, don’t want to have to be financially responsible. That’s a MISTAKE. Everyone should have a rough idea of how much they spend and have to save to afford their goals unless you’re worth 50 million dollars.
The reality is, budgeting is easy and without it, you won’t make any progress at all towards your goals. The simplest way you can budget is the 50/30/20 rule which you can read more about by clicking here. Another commonly appreciated method of budgeting is the envelope method. Getting a handle on your income and how your monthly expenses add up can give you perspective on your spending. Once you have a budget and understand where your money is going you can make choices about whether or not you can afford any extras, go on trips or upgrade your life (or alternatively, if you’re overspending and will never reach a single goal because you never have any savings). Ignoring your budget is one of the fastest ways to get in over your head with money mistakes.
2. Abusing credit cards.
Credit cards can be a great tool to help you make purchases with ease, build credit when you’re young, and get free rewards for spending. The trouble is when you abuse your credit card without thinking to yourself how much you can really afford… next thing you know you have a balance that’s bigger than you can pay off at the end of the month and you slowly drift into debt slavery. Learn more about how to use credit cards responsibly here.
When balances go unpaid, you incur an interest charge. While once in a while, or for an emergency, an interest charge can be manageable, unpaid balances can accumulate and so does interest.
3. Living above your means.
You’ve got to have a roof over your head so a mortgage or rent payment is a large portion of almost any budget, but often times millennials take on housing expenses that are more than their budget can manage. Being realistic about your needs and wants when it comes to housing can help you determine the appropriate percentage of your budget to allocate to your choice of home and ensure you have money left over for other essentials and a little fun.
4. Having insufficient emergency savings
No one knows how bad or great the future may be. You may end up getting terribly sick. Your home may burn down or you may get into an awful car crash. Whatever your future may hold, you need to ensure you’re prepared for this by having emergency savings that are sufficient to ensure you’re prepared. Aiming to save at least 20% of every paycheck every month is not only a good financial decision for most people, but it will make dealing with emergencies less stressful.
5. Overlooking the little things.
A latte on the way to work, lunch out each day, more data on your mobile plan, and daily and monthly expenses that seem like a few bucks here and there can really add up. Taking time to track some of your regular spendings might help you see that cutting back on some of the little things can have a big impact on your budget.
6. Not asking for a raise or negotiating when offered a job
We all have to work and so many people approach accepting a job emotionally. They think to themselves “yay! I was offered a job. This is great. I’m sure the job is fair so I’m not going to evaluate it. I’ll just take it.” The problem is, they may be right but they may not. Most employers have a budgeted range and they typically start at the bottom of it. By failing to negotiate, you’re costing yourself potentially tens of thousands of dollars or more throughout your lifetime. Click here for a guide on how to better negotiate.
7. Failing to plan for the future.
Whether planning for the future means starting to save for retirement or just deciding to be intentional about setting money aside for an upcoming trip or event, thinking beyond the current month or year is an excellent financial strategy. Seeing the big picture helps day-to-day budget management become more important and impactful. This gets hard for many people because so many millennials live in the moment. Your therapist might say this is a good idea but your finances would tell you it’s not.
8. Signing up for auto payments.
If you have a good handle on your spending, setting up monthly auto-payments for items like cellular plans, utilities and necessities can seem like a smart move: no more needing to remember to pay the bill on time. But if you go out with friends and pick up the tab and forget the water bill is being withdrawn tomorrow, you can easily overdraft your account and incur fees.
9. Not paying taxes.
Skipping out on Uncle Sam is a bad idea. While staying current on your taxes might be difficult if you owe money, the ramifications of not paying can have a lasting impact on your credit.
10. Making poor investments.
Maybe it goes without saying, but get-rich-quick schemes are probably too good to be true. Working with a financial planner and investing your funds in a strategy that makes sense given your goals and risk tolerance can be a really smart move. Rolling the dice investing your savings based on ads on Youtube from an investing guru or in some cryptocurrency you don’t understand probably isn’t.