For many of us, it can be extremely difficult to decide exactly how to manage our money. In fact, money management may be among the most difficult tasks we face day-to-day. No matter what strategies we try, how much income we have access to, or the extent of our own personal budgets, we may feel as though we have never quite made the best possible decisions for our own financial futures. What’s worse? Sometimes, the mistakes we make are not even conscious choices. Much of the time, millennials make money management errors simply because they are not aware of all of the strategies and options that exist.
Regardless of the causes of our mistakes – whether by conscious choice or due to lack of knowledge – many young people do not even realize that their decisions are hurting their financial health until it’s too late. To combat scenarios like this, we have made a list of the 5 biggest money mistakes that millennials make each and every day.
1. Not Establishing Credit
Do you know your credit score? If not, you might want to look into it. Your credit score is a number between 301 and 850. It is a reflection of how well you have used credit in the past. If you have historically been good about paying off your credit card debt, your credit score should be high – meaning potential creditors will consider you more trustworthy in the future. If your credit score is low, you will be considered less trustworthy, and will likely pay more for things such as insurance, car payments, and mortgages in the future.
The biggest challenge is that “good credit” takes time to build. You need to prove that you can use your credit card and repay your debt regularly. However, many millennials choose not to worry about their credit scores until it is time for them to make bigger purchases, such as the purchase of a house. We like to think that this mistake is not for lack of concern, but generally for a lack of understanding about the importance of building credit. So, take your time to read up about credit scores and learn how to build good credit – it could definitely make things easier down the road.
2. Not Starting to Save For Retirement
A surprising number of Americans also don’t begin to save for retirement until it’s too late. In fact, most people under the age of 30 have not even thought about retirement yet – let alone opened an account to start saving money. We know that retirement seems very far off right now, but it can’t hurt to start thinking about your goals. Consider asking your employer about 401(k) options or start your own savings account if you need to. The more money you can put away now, the better! Trust us – in 30 years, you’ll be glad you did.
New jobs mean new paychecks – and millennials make up the greatest proportion of workers entering the job market today. But, as many millennials are graduating, finding real jobs, or even being promoted for the first time, it seems that the excitement of having money can become problematic. These young workers finally have the means to “inflate” their lifestyles and buy the nice products they have been dreaming of – but sometimes the thrill becomes too much. Millennials, more than any other generation, are known for overspending and living from paycheck to paycheck. Of course, in terms of our financial futures, this habit is unsustainable. To avoid overspending, try making yourself a budget or learning a little bit about how today’s stores get you to spend more money than you really want to.
4. Buying for Quantity Instead of Quality
That said, many millennials also have the means to make some long-term purchases. The trickiest part of spending is deciding what things to buy for cheap and which things to really invest in and keep long-term. You might consider buying a home instead of paying monthly rent for an apartment. You might notice that some of your old favorite “value packs” actually last for a much shorter period of time than the smaller name brand versions of comparable products – and this could cost you way more in the long run. So, sit down and think about what products you want to “splurge” on before you shop. Remember, these products don’t all have to be expensive, just relatively higher quality than their substitutes.
5. Not Investing Early
Investing money has been called the “most effective way to build wealth.” The younger you are when you learn to invest, the more time you give your money to grow. But, many millennials have not even thought about investing yet, because it is “difficult” or just plain hard to learn. To that, we can only say this: everyone has to start somewhere, and starting young gives you the power of time on your side!
By thinking about these common money management mistakes, you can make more informed decisions regarding your financial future. Or course, we know that it is hard to make all of the right decisions all of the time, but it is only through testing your options that you will learn what decisions work best for you!