Talking about financial success, does the so-called “snowflake generation” think of this? This generation is said to be more vulnerable in considering and understanding other people’s views because they are more concerned with their image and social status.
Financial success is an important thing that millennials should prioritize as early as possible. Above all, the road to financial independence should be given the utmost emphasis despite the emotional vulnerability of this young generation.
Making mistakes with money should be avoided at all cost. There’s nothing wrong with having some fun and enjoying life, but addressing the biggest financial mistakes millennials make plays a major role in having a life full of happiness and contentment in the future.
As the uncertainty of the future is inescapable and it’s making financial success gloomy, there are 7 common mistakes you have to avoid. By learning these mistakes and coming up with feasible solutions as early as possible, your financial future will be secured.
It’s a clear mistake among young people. They don’t have the drive to save a portion of their hard-earned money because of the social pressure they get from peers and media. Between needs and wants, millennials would like to spend every penny from their salary to buy the things that will eventually depreciate and will have no value in the future.
There’s a recent survey of retirees conducted by Pentegra Retirement Services, explaining that around 39% of the respondents revealed that they regretted spending their money for nothing during their younger years. Then 63% suggested that saving money is the most important thing the millennials should do as early as possible.
This is the bottom line – saving money saves life. If you’re thinking of your financial stability in the future, you should avoid making excuses on why you can’t save enough. Extracting at least 10% out of your salary every payout time can change your life dramatically. Think ahead of time as your future will become gloomy if you’re not practicing this kind of attitude towards money.
LUXURIES THROUGH CREDIT CARDS
This reflects the unnecessary debts this young generation is having. Being prudent and wise in all your decisions with regard to money can change your life. However, millennials are into luxurious things. They tend to use their credit cards to buy things that won’t give them money in return. This group of young people always contests that Uber rides, Spotify premium, Netflix premium, and Soul Cycle are necessary expenses. Yes, they could be. However, this assumption depends on how much money they are making. If they have tight budget, then using credit cards to buy or subscribe to those things is eventually a money issue.
It boils down to one thing – set your priorities. Defining wants from needs is very important. The basic needs are food, shelter, clothing, medicines, and transportation. Other than these are not necessary and can be adjusted (including expensive Uber rides). Always make sure to prioritize things that really matter.
OVERPAYING FINANCIAL ADVISERS
Is a mutual fund manager really needed? Every time you pay a financial adviser for a particular help, like arranging your payment for mutual funds, you’ll be shelling out some cash for that person. Another tendency is for the adviser to give you many mutual fund options which will affect your savings inevitably.
What’s the best thing to do? Stick to what is known as low-cost index funds and ETFs. This option can help you save 1% every year. Though it’s a minimal saving rate to think of year after year, it will have a great positive impact to your savings.
You’re not discouraged to have a financial consultant because investing in stocks or mutual funds is one of the effective steps millennials can do to build a strong financial future. But you have to think and act wisely. Another possible option for you to save more when you invest in mutual funds is to pay your adviser in an hourly rate. With this, it’s a win-win situation between you and your financial adviser.
INADEQUATE INVESTMENT KNOWLEDGE
Investing in assets is one of the best techniques in fostering financial success. But the question is: how deep is your investment knowledge? Many people fail financially because they didn’t invest during the time they had to it.
Based on a research, millennials are considered as conservative investors. Such study reasoned out that the main factor why they’re conservative in investing is due to economic meltdown they have witnessed during their growing years.
However, the young generation should understand the fact that stock market has an up-and-down cycle. For long-term financial growth, investing in stocks still plays a major role in having a stable financial future. The only thing you have to determine is the lifespan of your investment until it reaches its maturity. Financial experts and planners advise you to opt for a target date fund that is closest to the time when you’ll turn 65 years old.
NO SOLID FINANCIAL FOUNDATION
Most millennials are more likely to live in a fancy residence rather than build a solid financial foundation. The best example are those living in a high-end condo unit with high mortgage payment every month. Well, there’s nothing wrong with providing your family a luxurious home. But have you thought of building a solid financial foundation first before buying anything extravagant?
Having a comfortable life is a dream for every one of us. No one really wants to live in shanties or slum communities. Yes, you want your family to have a comfortable living. But spending a lot of money for your home is not advisable. The best thing you can do is to prioritize first your emergency fund before jumping into paying a high-end residential unit. This is a point where you have to spend first your money that will give a solid financial foundation or assets that will generate more money for you.
Again, it’s all about giving priority to the things that provide more benefits in the long run.
FAILURE TO MONITOR PROGRESS
It’s important to monitor the money that is coming in and out every month. This helps you ensure that you’re making a financial progress despite going through a life of ups and downs. Be very wise in spending whether you have more or less money. Avoid any unnecessary expenses and practice delayed gratification when the time is unfavorable. This is how to strengthen your net worth and create a great financial progress from time to time.
Avoid financial stagnation. What does it mean? Financial stagnation means you’re money is not flowing in. It remains dormant. Then it gets complicated when it flows out because you forget to monitor your own financial progress.
One of the reasons why it’s happening is you’re obsessed with buying unnecessary things. You keep on spending until the time time you get broke.
There are available online tools like these net worth calculators for you to monitor your net worth and financial progress.
NO RETIREMENT PLAN
Above all, you need a personally tailored retirement plan. This plan is your blueprint for the future and your financial growth depends on it. It is a common idea that millennials are into investing for education. There’s nothing wrong with this. However, if your only focus is on your education loans, then you’ll run the risk of having nothing during your retirement years.
What is the applicable rule then? You’ve got an employer who is matched with your 401(k) and/or Health Savings Account (HAS). All you need to do is to match the contribution fully starting on day one.
Let’s go back to the most common academic loan. If you have an interest rate of 6% or less, the financially sound advice is to take your money going to a long-term investment rather than paying such loan off at an early stage. Saving at least 50% for your 401(k) or retirement plan will give you figures that have a dramatic impact to your retirement fund. You’ll be able to see that you’re already having a six-figure difference in your balance sheet.
James Harnsberger is an Enlled Agent and NTPI fellow. He has helped thousands of clients deal with their financial and tax issues.
James has developed a tax planning education and wealth building program that aims to help more Americans find their way to financial freedom.