Millennials have a bad rap. They’re known for not buying houses and splurging on things like brunch and avocado toast instead.
Well, that may be the perception, but it isn’t true.
One thing that is accurate about millennials and money is their relationship with each other is unlike any generation before.
Millennials and Money
While it is a different economic climate than that of previous generations, there are still some hard and fast money mistakes millennials need to stop making to ensure their financial future (and freedom.)
Let’s dive deep into the top five money mistakes of today’s millennials and the actionable steps you can take to fix them.
1. Overdependence on Plastic Money
Millennials may feel as if they were born into debt. They’ve had credit cards, car payments and school loans for as long as they can remember. The debt begins to feel normal. What’s a little more going to hurt?
That kind of mentality is how credit card debt becomes unmanageable and recurring. Millennials may be leaning into their plastic more than needed, for unnecessary items too.
Needs Versus Necessity
There’s a little bit of a blurred line when it comes to “needs” and “necessities” these days.
No, you don’t NEED a premium Spotify account, that’s a luxury. While taking an Uber at times is the responsible and necessary choice, other times, it’s a luxury. Going for the manicure/pedicure even though you’re out of cash, that’s when the little plastic cards come out.
Stopping adding to the debt could be as easy as not carrying the cards or adopting a strict emergencies-only policy (Just be sure to define what an emergency is.)
The Invisible Card
That song you have stuck in your head? Just click download in the iTunes store. Hungry? Tap in an order on seamless
Thanks to on file in apps, half of daily purchases go largely unnoticed. It’s easy to spend money on a card, especially if it never leaves your wallet Try to adopt a cash-only approach and you’ll cut your spending
Paying It Off
While you wean yourself off using cards, its time to start paying it off. To truly make a dent in debt you’ll need to be paying more than the monthly minimums. It’s best to use a budget to help figure out how much debt repayment you can actually afford on a monthly basis.
2. Not Saving for Retirement
Another way Millennials are managing their money differently from other generations is how they are saving for retirement.
While some they say it’s the area millennials lack in most, the fact is they are saving. Just not in the ways other generations. According to a survey, millennials are saving but not for a traditional retirement.
Millennials are now saving for a better quality of life rather than later in life. The traditional “retirement at 65” notion isn’t what they’re aiming for. Millennials would rather have a better quality of life but don’t consider a “stopping age” for ceasing work.
As a good rule of thumb, if your current job has an employer 401k match program, you should take advantage from day one. It’s worth seeing a fewer dollars in your weekly paycheck when you’re doubling your money down the line.
For those who are interested in saving for retirement but don’t have an employer match should be looking into how much to save.
When it comes to investing there are three major mistakes the millennial generation makes.
Not Investing At All
Research shows the millennial generation is less informed about investing than any generation before them. While the market does have its ups and down, it has time and time again proven to be the best place to park your money long-term (we’re talking 20 years plus.)
Investing doesn’t need to cost an arm and a leg (a thought that keeps Millennials and money off of the stock market) if done correctly. A young person’s best bet is to stay with low-cost index funds and EFTS.
Investing too conservatively
While everyone’s risk tolerance is unique, millennials are in a key position to invest and withstand a more aggressive portfolio. Individuals who are 35 years old and under are in the prime spot to be taking more aggressive risks, as they have more time to recover from most any hit.
The stock market has proven its value in a long term capacity but that doesn’t mean you shouldn’t check in on investments from time to time. The same goes for any savings account.
We don’t suggest becoming obsessed but do a check in every so often to see if you’re making progress. If not, it may mean you aren’t saving enough or otherwise are accruing too much debt.
4. Failing to Budget
As is the case with too many millennials and money, debt is an overwhelming factor. The good news? Properly budgeting can help alleviate that concern.
Millennials may be forgoing budgeting because online banks accounts are all online and easy to view at any time, so they choose to “wing it” instead. While that might work for a lucky few, it’s not a very good idea.
Tech-friendly individuals may enjoy employing a budgeting app like XOBI, which is attached to your accounts and then digitizes your spending so you can see where you’re spending money and then better create a budget.
Millennials and money aren’t a bad combination, as long as some thought is put into properly managing that money.
5. Too Much Car or House
Before you go rolling your eyes, yes, this is a thing. While it’s true millennials are more unlikely to become homeowners, the problem persists.
Housing prices have been going up, and Millennials are rising to the price tag, whether they can afford it or not.
Depending on the neighborhood and state you’re from will dictate how much you can avoid a high rent or high mortgage home, but making smart decisions is key. Use a calculator tool online to see how much house you can realistically afford.
A good rule of thumb is not to spend more than 50% of your income on housing.
It may come as a surprise, but car owners aged 30 to 40 have the highest amount of car debt. On average the number comes out to a whopping $14,000 in debt per person.
To be realistic, a car is to get you from point A to point B. Paying for anything more than for its essential function is a luxury.
If your car is becoming a significant financial drain (car payments, insurance, registration, repairs, gas, and the list goes on) consider joining a rideshare, or if you’re a two-car household, consider downsizing to one car.
While each issue regarding millennials and money won’t apply to every individual, each point offers sound advice for anyone looking to obtain a secure financial future.
Are you a millennial struggling for financial freedom? What works for you? Let us know in the comment section below.