Millennials represent the largest segment of the population. They will set the trends for the next 50 years, but can they avoid the financial pitfalls that tripped up earlier generations? Here’s some helpful tips.
Millennials are now the largest segment of the population, and with that distinction comes responsibility. As a group, they’ll define how money is managed, earned, spent and borrowed for the next half a century. But in doing so, can they avoid other people’s mistakes (OPMs)?
Here’s what we know about millennials. They’re earning less than their parents and spending more than they can afford. They’re also putting off marriage and buying homes, which were two defining economic drivers of previous generations.
We’re not recommending rushing into marriage or a mortgage. Instead, we offer tips to help millennials avoid making the same financial mistakes that earlier generations have:
Avoid incurring too much debt. If you can’t afford it, you shouldn’t buy it. Is the purchase a want or a need? Failure to know the difference can lead to purchases that you could be paying off for a long time.
When you rack up debt, it has long-term consequences on your financial well being. You can count on paying insane amounts of interest for months before touching the principal balance. Living a life where you’re always strapped for cash is no fun. You could end up with a poor credit score, making it hard to buy a car or home. Bottom line: Incurring too much debt prohibits you from growing any wealth.
Establish a budget. Finding time to create and maintain a budget is important. It allows you to track your money. How much is being spent and is it being spent wisely? Are you saving and paying your bills on time? In the end you’ll know exactly how much discretionary income you have after your financial obligations have been met.
Live below your means. As a society, we tend to spend what we earn, which leaves little room for savings. It may be difficult to recognize you’re living beyond your means while it’s happening. But, there are clues.
When you’re overspending, you’re typically living paycheck to paycheck. With little-to-nothing left over, it’s difficult to save for a vacation, a house, or any major purchase.
Living below your means is one of the key components of building wealth. Be aware of your spending triggers – the “amazing” deal and the “must haves.” Managing your money wisely is more important than the complications and stress that come with overspending.
Buy quality. Living below your means is about conservative spending. However, it’s not at the expense of quality. Whether it’s clothes, furniture, computers, or anything else, invest in things that are timeless and have value. When something is inexpensive, it’s too easy to throw it away and buy another. Smart shopping is not the same as shopping on the cheap
Save for retirement now. As a millennial, retirement seems like a lifetime away. That’s a good thing because you have a lifetime to save for it. The secret is to start saving early. You don’t want to wait. Down the road, you may be too busy, have too many other financial obligations or too little time to take care of it.
If your company has a 401(k) plan, invest in it and take advantage of the company match program. Every time you change jobs, roll over your account into your new employer’s plan.
Probably the best advice is to meet with a financial professional. They can help you create a financial strategy that will help you avoid OPMs.
Source: 9 Worst Money Mistakes, Business Insider, June 24, 2015
Source: The biggest money mistakes Millennials are making, CNBC.com, Sept, 2016.
Source: Millennials: Avoid these 5 financial mistakes, CNN Money.com