Many millennial households are on their way to
building substantial wealth. They are saving 20% or
more of their paychecks, investing in 401(k) accounts,
and keeping their debt levels low. But others, even
those with good educations and solid careers, are
making financial mistakes. And some are making them
over and over, digging a hole from which it may take
years to climb out.
Millennials can help themselves over the long term by
avoiding several key errors. As a wealth adviser by
trade, and more importantly, as someone actually of
this generation who has personally gone toe to toe with
many of the financial challenges often faced by
millennials today, here are the 10 most common
millennial money mistakes I’ve witnessed:
1. Failing to consider the financial consequences
of student loans
Many people want to attend a prestigious university or
earn a specific degree, but will this decision enable you
to earn enough money to justify the expense? Too
many people sign up for mounds of student debt
without considering the financial magnitude of their
monthly debt payments and the length of those
payments versus their expected incomes.
Anyone considering a second degree, a master’s
degree, or a doctorate should determine before
borrowing money if the new degree will generate
enough additional earnings to justify the expense.
2. Postponing saving
People with just a little money left over after paying
their bills can fall into the trap of saying that they will
start to save just as soon as they can. This thinking is
dangerous because as we grow older, our lives often
become more expensive.
To get ahead financially, you don’t need to live within
your means; you need to live beneath your means.
When you get a bonus, a raise or a promotion, take
advantage of the additional income and at least
partially increase your savings — not just your lifestyle.
Finding a way to save a little each month is really how
to get ahead and make financial progress toward your
3. Ignoring the financial consequences
of an expensive wedding
Sure, it may very well be one of the most important
days of anyone’s life, but it’s also critical to make sure
that you are not saying “I do” to unnecessary financial
Anything with the word “wedding” in front of it is
expensive, whether it’s cakes, flowers, photographers,
coordinators, destinations, or venues. Between parents,
friends, and social media, many millennials feel
pressure to deliver on their big day, but there can be a
very real and impactful financial trade-off between
cake and punch and buffet and open bar. Think
beyond Day 1. Days 2 and forward of a marriage are
Having an inadequate or nonexistent
'rainy day fund'
Returning from the mountains after one of our first
vacations as a married couple, my wife and I learned
how critical having a “rainy day fund” is firsthand! The
rolling foothills proved too much for my beloved Jeep,
and had we not set aside some cash in a savings
account for emergencies we would have been in a real
financial pickle trying to decide between taking on debt
to get some new wheels, asking her father and mother
for help, or talking to mine.
To make sure you don’t have to face choosing
between one of those less-than-ideal options, one of
the first steps to building a solid financial foundation is
to save three to six months’ worth of your monthly
living expenses in cash in a “rainy day fund,” so life’s
curveballs won’t derail your finances. And there will be
Having too many credit cards
You’re at the checkout line and there’s allegedly a
once-in-a-lifetime opportunity to save $25 or 10% on
your initial purchase if you’ll just take a few minutes
and open a store credit card. Sound familiar? We all
face these temptations, and despite the short-term
financial benefits or savings by opening a new line of
credit, you should almost always just say no!
Buying with credit is a good way to earn points and
rewards, and it offers additional fraud/identity theft
protection versus using a debit card, but credit cards
also require personal restraint and consistently paying
off the entire balance month after month to be utilized
Buying too much car
Even after careful research and knowing how much
you can afford, once you take a test drive it’s easy to
crave the better model with the premium wheels and
entertainment package. But don’t; only get the car you
need. Additional money spent on a slightly nicer ride
could be used to establish a rainy day fund or boost
your savings for retirement. Plus, a car is a
depreciating asset — the value drops as soon as you
leave the dealership.
Buying too much house too soon
Buying a home before you can handle the financial
responsibilities can quickly strain your finances. The
goal for millennials should be to buy a house that
meets your needs and helps build equity, not the
dream house you want to retire to. For many first-time
homeowners, the monthly mortgage payments and
costs of maintenance, utilities, and real estate taxes
can be overwhelming.
As you are furnishing a house, it’s also important to go
at a reasonable pace and decorate at an affordable
level. Buying a bunch of furniture or fancy accent items
all at once can torpedo your cash or create recurring
credit card debt. A new house doesn’t have to be a
finished product overnight, and your first house doesn’t
have to be your dream house!
Not saving enough for retirement
Many millennials realize that the retirement planning
game has changed and will likely continue to do so.
Pensions are headed the way of the dinosaur.
Regardless of your politics, most everyone agrees
Social Security benefits may not look like what they do
today once it’s time for millennials to collect. That
means what your retirement looks like may be pretty
much up to you!
In order to build up an adequate nest egg capable of
sustaining your desired lifestyle in retirement and to
fund all those trips on the bucket list and the place on
the beach, you need to start saving now. Make certain
you are taking full advantage of any matching
contributions your employer offers to your retirement
plan, but also work toward contributing even more to
your 401(k), to your IRA, and to a taxable brokerage
account. The longer your invested money has a
chance to grow and compound, the larger your nest
egg will likely be, and that can mean a nicer (and
Children, but no wills
Married couples should have a will, and those with
children should definitely have one. A will helps make
sure that your final wishes will be fulfilled and names
the guardian of your children. As a proud father of two
young kids, I can attest that even though it is probably
the last thing you want to think about between
sleepless nights and sippy cups, updating your estate
plan needs to be done.
10. Putting your career first
Many people I know love what they do for a living and
they are really good at it. Others are burning their
candle at both ends trying to hit that next sales goal or
fast track that next promotion. This may surprise you
coming from a wealth adviser, but I can attest that
money isn’t everything.
As the famous saying goes, “Nobody on their deathbed
has ever said they wish they had spent more time in
the office.” It is noble to work hard and have a fulfilling
and successful career, but make sure you aren’t
always putting your job ahead of your life, your health,
your family and your friends. If you do, you may end up
having a lot of money and being near the top of the org
chart, but yet still very poor at the same time.
Tom Presley, Partner, Brightworth
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