As a young investment advisor in my late-20’s, I’ve fielded a lot of questions from my peers. As a group, we’re entering the stage of our lives where personal finance decisions are becoming extremely important. We’re starting to earn more money, plenty of people are getting married, buying homes, and starting families. One or two bad financial habits, or big mistakes, can really derail your financial situation for years to come. As younger Millennials, we want to take that next step towards financial independence, and with that there are some general mistakes we need to avoid.
Plenty of Millennials (myself included sometimes) fall into the trap of living beyond our means of support. Sometimes we feel the need to keep up with those around us, our friends and peers. Sometimes we spend like we did when our parents were still covering some major expenses. Many millennials are finding themselves in serious debt at a young age. Between student loan debt and debt from overspending, Millennials find themselves in a tricky spot. Excessive debt can create credit problems that can have consequences for years.
Neglecting Your Credit Score
Good credit is a crucial part of a strong financial life. Young adults will need better credit than most to help them secure financing for a home, business, and auto loans. The rule of thumb is that a credit score should be checked at least every six months so that any errors can be disputed, problems with credit can be addressed, and you will be alerted to any possible misuse of your credit or accounts.
Like most other areas of your financial picture, not wanting to know and not looking at your credit score is NOT an option. Your problems won’t go away if you neglect them. They’ll just get worse.
Lack of/Not Following a Budget
While the word ‘budgeting’ makes most people cringe, and it’s not exactly the MOST fun thing, it is a vital tool to help secure a solid financial future. There is this mindset that a budget tells you everything you CAN’T buy. In reality, a budget tells you everything you CAN buy, and it just makes sure you’re spending money on things that are important! It is crucial to stick to these parameters outlined in your budget, however. When budgets are not adhered to, credit card balances will rise, and savings will be depleted, slowly putting financial goals in jeopardy.
Failing to Plan for Emergencies
If 2020 has taught us anything, it’s that the unexpected will happen – and we need to be ready for it. This makes having an emergency fund crucial to get through these emergencies without having to go into debt or delaying payment on bills. A good rule of thumb is to have at least three to six months’ worth of income in savings, and it’s important to replenish the funds once they get used.
Rules of thumb are good, but realistically that may not be plausible for some Millennials right now. If you’re struggling to make ends meet this year, and can’t sock money away each month, that’s okay. Just be sure to make it a priority once you have the ability to.
Lack of Real Financial Education
This one isn’t ENTIRELY our fault. Standard curriculum in public schools have never really focused on financial literacy skills. While New Jersey has really upped their game in terms of teaching financial literacy, we didn’t get the benefit of that in high school. These courses teach students about the basic money concepts such as debt, credit, and interest, to help them learn how to manage money and make smart financial decisions.
Closing in on 30, however, the responsibility shifts onto our shoulders. We need to continue to educate ourselves on the basics of personal finance.
Whether it is a lack of understanding finances, failing to plan, or overspending, millennials succumb to many mistakes when it comes to finances. The best way to avoid these common mistakes is by understanding them and continuing to seek education on money management to help secure a financial future.