Most millennials today don’t have many years worth of financial experience under their belts as they enter the professional world. Often these young people find themselves to be quite confused when it comes to properly planning out their finances. With student debt and the difficulty that comes with breaking into the job market, millennials have plenty of factors that seem to hold them back from financial stability.
Aside from these obvious setbacks, some of these young adults aren’t always particularly wise with the way they spend and save their money. This generation tends to be very concerned about missing out on life and what their other peers are up to, making them less interested in being smarter with their money. Here are some of the most common mistakes millennials tend to make with their finances.
Choosing Not to Budget
This is often the cardinal mistake that many millennials fall victim to. When you choose to avoid creating and sticking to a budget, you can typically find yourself living outside of your means. Without taking proper action and preparation, your spending habits can severely hamper any future financial goals you may have set.
There are a plethora of online budgeting tools that will make building and understanding a budget simple for anyone. Once your budget is made, calculating the numbers and actually seeing your funds coming and going each month is made much clearer. A simple budget that is laid out clearly can help you determine what you can afford to spend and how much you are able to save to build a buffer from debt.
Overuse of Credit Cards
Relying on your credit cards to make purchases can have disastrous effects on your financial opportunities if you let your spending get out of control. Keeping your credit score in a high standing is important, as a good rating will help you secure a larger purchase like a home or vehicle. Misusing your cards and consistently making late payments will only harm your credit score which will make future important purchases more difficult or impossible.
To remedy this issue, you need to start prioritizing your purchases. Look at your wants and needs and see what you can do without for the time being as you pay down any debt. If you can’t afford to pay cash for movie outings or manicures, it might be time to stay in for the night or do your own nails. Save your credit cards for emergency situations so they don’t become the go-to way to cover the costs of everyday life.
Putting Off Retirement Planning
Retirement can seem like a long way away for a young adult in their twenties, so why start saving for it? This is the mindset adopted by many millennials just starting out on their career paths. As these young adults focus on getting their professional careers started and on track, it can be understandably difficult to start planning for retirement. But it needs to be a focus for any millennial.
You may think you have plenty of time, but in reality, proper retirement saving starts as early as possible. Many younger individuals believe that they have to be in their ideal dream job before they can start saving for their golden years. This is not the best way to go about preparing for retirement. Millennials need to start saving now so they can benefit from having more time to build up a decent nest egg as they grow and mature.
Don’t Need Life Insurance?
Unfortunately, most millennials skip out on life insurance because of the myth that a policy is only beneficial for those that have dependents. What many people fail to see is that the best time to purchase a plan is now when you are young and healthy. A life insurance policy only gets more expensive with age, so waiting until you have a family isn’t the best move to make.
But it isn’t your age alone that affects your chances at more affordable insurance. As you grow, you could have a drastic change in health that may make getting the ideal plan you want impossible. Even if you don’t plan on having a family, life insurance can still be a big benefit to others who are important to you. Parents or grandparents that may have co-signed accounts with you can be liable for any debts you have should you pass away. Life insurance can help protect loved ones from covering your debts and putting themselves into financial distress.
Having an emergency fund account in place is an important financial move everyone should make. With so much going on in the day to day lives of young adults, an emergency fund can often be a fading thought. Millennials are already at a fragile stage in life right now, their professional careers are just taking off and they may be carrying a lot of student debt. An emergency can only make things worse if you aren’t prepared.
Putting a little bit of your paycheck aside each payday will help you easily build a cushion of savings that you can dedicate for emergencies. You should begin by deciding on a figure that you are comfortable with and work towards hitting that mark. At the very least, you should try to save up to $1,000 to have a fund that will keep your finances intact should the unexpected happen.