Financial Lessons for Millennials How to Avoid These Money Mistakes
In this article, we are going to discuss the 7 biggest money mistakes millennials make (that you should not make). Here are key financial lessons for them how to avoid these money mistakes.
7 Biggest Money Mistakes Millennials Make
Some Millennials are rich in personal finance knowledge and awareness, while many other millennials fall short of being wise with their money.
Let us see the biggest money mistakes Millennials make :
1. Failing to Start Investing Early
- When it comes to investing, the earlier you start, the better corpus you can build. Research shows that Millennials are less likely to have general investment knowledge compared to older generations.
- Millennials are more conservative type of investors despite having a longer timeline than their older Gen X and Baby Boomer counterparts. That is mostly due to the fact that they witnessed the largest market meltdown in decades during their formative years.
- Early investing is one of the most important steps to reach financial freedom. Putting money into a growth vehicle can be one of the prudent ways to make a new income. All it takes is a little research.
- There are different ways of investing hard-earned money, including :
- If you’re clueless about how to invest, you can approach a financial advisor.
2. Spending at the Rate of Earnings
- The most damaging money mistake millennials make is spending more than they have. This often goes hand-in-hand with not knowing how much you spend. At early career, living in the moment sounds a lot more appealing than planning for the future. But you’ll never reach financial freedom if you keep falling into the trap of ‘lifestyle inflation’ or increasing your spending as your earnings go up.
- For example, Don’t upgrade to a bigger apartment just because you got a raise. Don’t plan for an expensive vacation just because you got a bonus. Instead, focus on the bigger picture and save that money or use it to pay off any existing debt.
- With just some minor belt-tightening, you can grow your money and spend it on more important financial goals such as buying a house, early retirement, protecting your family etc.
3. Not Having Emergency Savings
- An emergency fund is a safety net which will protect you in case of any financial emergencies such as a job loss, illness or injury.
- Ideally, you should have enough in your savings which will provide around six-month cushion of living expenses. Any amount of emergency savings can go a long way.
4. Letting Credit Card Debt Pile up
- The habit of swiping credit cards can be addictive and disrupt your financial calculations. Credit cards can be a great tool, if used responsibly. The problem the millennials generation is facing is that most millennials use their credit cards for almost everything. For example, Clothes, shoes, coffee, groceries, vacations, entertainment. One should change this habit.
- Because this “buy now, pay later” mentality can come at a cost. High interest rates and never-ending minimum payments can steal hard-earned money that should go towards short-term savings or investing for retirement. Use your credit card wisely depending on your cash flow management.
- There are two important rules when it comes to using credit cards :
- Don’t rely on it to pay for life’s necessities
- Don’t overspend on things you don’t need
5. Not Having a Plan to Get out of Debt
- Building debt has never been easier and that’s one of the biggest money mistakes one can make at any age. Swiping a credit card or financing big purchases like phones, TVs, furniture make falling into debt seem almost inevitable.
- And once you’ve made the mistake of falling into a cycle of debt, it can be impossible to escape. Interest rates and penalty fees for late payments add to the total amount you owe.
- You should always have an action plan for handling your debt. Before you take on any debt, you should do the required calculation and do some planning ahead of time. This is the first step in building a budget.
6. Not Saving for Retirement
- Waiting to long to begin saving for retirement is a huge mistake that will come back to haunt you in the future.
- Another big thing millennials tends to skip out on is their retirement fund. The major two reasons retirement planning is ignored by individuals in their 20s is because they think they have enough time to start, and they’re not in their dream job.
- So, you should start your retirement savings now and benefit from having time on your side to grow your investments.
7. Forgoing Health Insurance (Not Being Proactive about Health)
- Warren Buffett said, “You have only one mind and one body for the rest of your life. If you aren’t taking care of them when you’re young, it’s like leaving that car out in hailstorms and letting rust eat away at it.” Getting rid of all that rust is going to be very expensive.
- The common mistake the millennial generation makes is to take health insurance for granted. It might be hard to balance your budget when you have to pay a monthly payment to a health insurer, but doing so can prevent major debt later down the road.
- Being proactive about your health will help you live longer and prevent high health care costs in the future.
- Millennials world rotates around spending money without considering the consequences. So, Millennials should never waste money in paying for an unnecessary streaming service, overpaying for brand-name electronics etc.
- Your hard-earned money should work for you in course of time. By improving the awareness towards personal finance and imparting financial discipline, you can easily avoid these money mistakes.