As much flack as millennials get from older generations about their lack of financial savvy, the truth is that many are actually anxious about their financial futures. With our rapidly evolving economy, increasing demands on people’s time and money, and near-insurmountable levels of competition for well-paid jobs, it’s no surprise that millennials are struggling to keep cash in their pockets.
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Add this to the general lack of financial knowledge common among young people – no matter the generation – and you get an emerging population that can make a lot of mistakes about their finances. Luckily, by starting early enough and with the right information, millennials can avoid these mistakes that can derail their future financial stability. Here are a few common errors millennials make with their money, and tips on how to correct them – or, even better, avoid them entirely.
Not saving for retirement
For people in their 20s with their whole lives ahead of them, planning for retirement can seem like a distant obligation instead of one to think about right now. Many millennials believe that they have enough time to start saving in the future, and are waiting for that right job to set up a retirement fund.
However, putting off saving for retirement can be extremely costly in the long run. 39 percent of polled retirees regret not having started their retirement funds sooner, while 63% advise people to start saving up as soon as possible.
In this case, millennials should definitely listen to their elders. Thanks to the beauty of compounding interest, the earlier people start saving, the more their money will grow. Putting away just a little bit of money per paycheck will provide a lot of cushion when they grow too old to work.
Not getting insurance
Along with avoiding the reality of aging when considering their financial planning, many millennials make the mistake of feeling invincible. Although they may look and feel healthy while in their 20s and 30s, not preparing for a medical emergency can have disastrous effects on finances.
Ambulance rides, hospital stays, medical exams, blood tests, and more are all extremely expensive in the U.S., so buying health insurance is a must for anyone trying to protect themselves and their money from an accident or illness. Worse, if disaster strikes and they pass away, a lack of life insurance can prove devastating to loved ones. It may be considered a purchase only for older people, but millennials can pass on debts and funeral costs to those they care about inadvertently. To avoid this, a good life insurance policy is necessary.
Not investing enough
Millennials tend to have less investment knowledge and exercise more caution about investing in general than older generations. Possibly due to the fact that millennials witnessed a huge market crash as they entered adulthood, they often do not trust the economy enough to invest their hard-earned funds.
This is an understandable, but damaging mistake. Not investing, especially at a young age when risk isn’t as big of a deal, can cause millennials to miss out on a lot of potential growth. Despite the market’s peaks and valleys, it does have a general upward trend over long periods of time.
This means that by investing a little bit each month over decades, millennials can see significant returns by the time they reach retirement – bringing comfort in old age that much closer to reality.
Taking on too much debt
It’s easy to incur large amounts of debt when you feel like you have all the time in the world to pay it off. Further, some debts can be relatively unavoidable nowadays, like the student loans crippling many young people today. However, many millennials make the mistake of adding even more debt on top of what they already owe, and find themselves struggling to keep up with payments.
Many millennials use credit cards and other loans to live outside their means, which can result in huge loan payments that hurt the potential for saving. To avoid this, it’s important that millennials avoid taking on any more debt than is necessary. A good rule of thumb is if you don’t need it, don’t borrow for it.
Neglecting credit scores
Many millennials are surprised at how essential a healthy credit score is in different areas of life. When securing a car loan, renting an apartment, or even getting a job, people checking credit scores is a sometimes unfortunate reality – especially for young people who haven’t been paying attention to it.
Due to rising debts and costs of living, many millennials don’t have the credit scores they need to get ahead on their finances. To avoid this, being careful about credit cards and making payments on time are necessities. Perhaps even more importantly, millennials need to regularly check their credit reports to make sure there aren’t any errors or surprises that can kill their chances at a necessary loan, job, or living situation later.
From being called “special snowflakes” to “failed launches,” millennials get their fair share of criticism for the mistakes they can make with their finances. However, by avoiding some basic errors in planning, there’s no reason that they can’t achieve financial security into full-blown adulthood.