9 Money Mistakes Millennials Should Avoid

Many millennial households are on their way to building substantial wealth. They’re saving 20% or more of their paychecks, investing in 401(k) accounts, and keeping their debt levels low. But others, even those with good educations and solid careers, are making financial mistakes. And some are making them over and over, digging a hole from which it may take years to climb out.

Millennials can help themselves over the long term by avoiding several key errors. As a financial planner and, more importantly, as someone who has personally dealt with many of the financial challenges often faced by millennials today, I offer this list of some of the most common millennial money mistakes.

#1: FAILING TO CONSIDER THE FINANCIAL CONSEQUENCES OF STUDENT LOANS

Many people want to attend a prestigious university or earn a specific degree, but will this decision enable you to earn enough money to justify the expense? Too many people sign up for mounds of student debt without considering the financial magnitude of their monthly debt payments and the length of those payments versus their expected incomes.

#2: POSTPONING SAVING

People with just a little money left over after paying their bills can fall into the trap of saying that they will start to save just as soon as they can. This thinking is dangerous because as we grow older, our lives often become more expensive.

To get ahead financially, you don’t need to live within your means; you need to live beneath your means. When you get a bonus, a raise, or a promotion, take advantage of the additional income and at least partially increase your savings — not just your lifestyle. Finding a way to save a little each month is really how to get ahead and make financial progress toward your goals.

#3: IGNORING THE FINANCIAL CONSEQUENCES OF AN EXPENSIVE WEDDING

Sure, it may very well be one of the most important days of anyone’s life, but it’s also critical to make sure that you’re not saying “I do” to unnecessary financial distress. Anything with the word “wedding” in front of it is expensive, whether it’s cakes, flowers, photographers, coordinators, destinations, or venues. Between parents, friends, and social media, many millennials feel pressure to deliver on their big day, but there can be a very real and impactful financial trade-off between cake and punch and buffet and open bar. Think beyond Day 1. Days 2 and forward of a marriage are important, too!

#4: HAVING AN INADEQUATE OR NONEXISTENT RAINY DAY FUND

One of the first steps to building a solid financial foundation is to save three to six months worth of your monthly living expenses in cash in an emergency fund. The emergency fund will help ensure life’s curveballs won’t derail your finances. And there will be curveballs!

#5: HAVING TOO MANY CREDIT CARDS

You’re at the checkout line and there’s allegedly a once-in-a-lifetime opportunity to save $25 or 10% on your initial purchase if you’ll just take a few minutes and open a store credit card. Sound familiar? We all face these temptations, and despite the short-term financial benefits or savings by opening a new line of credit, you should almost always just say no! Buying with credit is a good way to earn points and rewards, and it offers additional fraud/identity theft protection versus using a debit card, but credit cards also require personal restraint and consistently paying off the entire balance month after month to be utilized effectively.

#6: BUYING TOO MUCH CAR

Even after careful research and knowing how much you can afford, once you take a test drive it’s easy to crave the better model with the premium wheels and entertainment package. But don’t; only get the car you need. Additional money spent on a slightly nicer ride could be used to establish a rainy day fund or boost your savings for retirement. Plus, a car is a depreciating asset — the value drops as soon as you leave the dealership.

#7: BUYING TOO MUCH HOUSE TOO SOON

Buying a home before you can handle the financial responsibilities can quickly strain your finances. For many first-time homeowners, the monthly mortgage payments and costs of maintenance, utilities and real estate taxes can be overwhelming. Make sure your mortgage payment and other housing expenses such as property taxes, homeowner’s insurance, HOA dues, and maintenance costs aren’t going to be a high percentage of your income. The often-referenced 28% rule says that you shouldn’t spend more than 28% of your monthly gross income on your mortgage payment. It’s not a strict rule, but is a good guideline to follow as you look for a home and consider the cost.

#8: NOT SAVING ENOUGH FOR RETIREMENT

Many millennials realize that the retirement planning game has changed and will likely continue to do so. Pensions are disappearing. Regardless of your politics, most everyone agrees Social Security benefits may not look like what they do today once it’s time for millennials to collect. That could mean what your retirement looks like may pretty much be all up to you.

In order to build up an adequate nest egg capable of sustaining your desired lifestyle in retirement, and to fund all those trips on the bucket list, you need to start saving now. Make certain you are taking full advantage of any matching contributions your employer offers to your retirement plan, but also work toward contributing even more to your 401(k), to your IRA, to a taxable brokerage account, and even to your HSA. The longer your invested money has a chance to grow and compound, the larger your nest egg will likely be, and that can even mean a nicer (and sooner) retirement.

#9: CHILDREN, BUT NO WILLS

Married couples should have a will, and those with children should definitely have one. A will helps make sure that your final wishes will be fulfilled and names the guardian of your children. As a proud father of two young kids, I can attest that even though it’s probably the last thing you want to think about between sleepless nights and sippy cups, updating (or creating) your estate plan is an important step to take.

If any of these mistakes seem difficult to prevent for you, and you would like to discuss how to get you and keep you on the right track, feel free to...