The 5 Biggest Mistakes Millennials Make with Money
Our generation is notorious for not being so financially savvy. It’s up to us to change the game. So, what can we learn from the 5 biggest mistakes millennials make with money?
- Not having a budget
Despite all the easily accessible apps for budgeting and tracking expenses, millennials are still having trouble getting a budget set up and sticking to it. We are spending more on Sunday brunches and Amazon than we ever care to admit.
The idea behind having a budget is to help you save money for any goals you have in your life. According to the 2018 Census Bureau, millennials earn, on average, $47,034 per year. Let’s keep the number simple. If you saved 20% (a good rule of thumb) of this income because of your budget, you would have saved $9,406.80 by the end of the year. That’s nearly $10,000!
- Not saving for the worst-case scenario
Only 44% of millennials have emergency funds. That means if an unexpected expense of more than $1,000 came up, it would be paid for on a credit card. The rule of thumb is to have six months of savings to keep you out of trouble.
On average, a single emergency expense (from medical bills to your car breaking down) can cost $2,500. You don’t have an emergency fund, so you put that bad boy right on a credit card. The average interest rate on a credit card is 19.02%. Let’s say you keep that balance for a year before paying it off. That means you will have paid on average $475.50 in interest by the end of the year. Give your future self some relief and save for an emergency!
- Not getting out of debt
Those interest payments, as we’ve seen, can add up, and fast! Business Insider reports the average millennial has $29,800 in debt, the bulk of which is credit card debt followed by student loan debt.
Since it’s a relatively even split of which is more popular, let’s say someone has $14,900 in credit card debt and $14,900 in student loan debt. The average interest rate for credit cards is 19.02%, which in our example will equate to racking up $2,833.98 in interest annually. And with the average interest rate for student loans sitting at about 10%, that will be $1,490 in interest paid by the borrower.
So, in one year alone, this big kahuna of debt will accrue $4,323.98 in interest payments in a single year! Can you imagine how nice it would be to have that money back in your bank account?
- Not taking advantage of your employer’s retirement accounts
There are many people out there who fail to contribute to their company’s retirement plan (i.e 401K, Simple IRA, etc.). It is a real tragedy when we not only put off saving for retirement, but we miss out on an employer match (yet another opportunity for “free” money).
Investopedia states the most common match is $0.50 per dollar up to 6% of the employee’s pay. Again, assuming you make $47,034 per year, this means you’re missing out on putting $4,233.06 in your retirement account per year, $1,396.91 of which is money your employer is PAYING you to invest in retirement. That’s significant even if you aren’t accounting for all the remarkable benefits of investing in your retirement and letting your money grow over time
- Not knowing the basics of investing
Only 43% of Millennials are currently investing for retirement. Compound interest can be your friend when it comes to investing.
For instance, if you invest $5000 at the age of 30 and that money earned 5% interest until you are 65, you would end up with only $27,580.07. Here’s the best part: If you invest $5,000 at age 30, depositing $5,000 at the same time every year for 45 years while earning 10% compounding interest, you would have amassed a whopping $3,958,976.60! In short, millennials are missing out on one of the best tools to grow their money- time!
How do we get out of this vicious cycle and start building a better financial future?
Well, the answer may be in the content above. The idea is that small, simple changes to your money can have a massive (and cumulative!) impact on your life. For some context, if you totaled up all of the savings we outlined above from all these mistakes, we are looking thousands of dollars in ONE year or many millions of dollars if those habits remained unchanged over a lifetime.
Curious about how to save millions of dollars over the course of your life? After all this math, investing some energy in your finances seems like the best investment you could possibly make. At Millennial Wealth Management we have a completely online course to help you overcome each of these mistakes and help you build the essential financial foundation for wealth in the long term. Let’s break the habit of feeling “broke” and living paycheck to paycheck. It’s not a matter of how much you make or how much you have saved so far. The changes you make today that last you a lifetime.
Join us for a free 1 hour webinar to learn more about how to tackle the first item on this list (and perhaps the most influential one): your budget. Sign up for our next session here.
Ready to join our Financial Foundations course? Get started here.