Every generation faces different financial challenges than the one before them based on changing economic conditions and times. Millennials, one of the biggest generations in size, those who are approximately ages 27 to 42, have come of age as fully fledged adults who have all the burdens and responsibilities of adulthood. The world is more expensive than it was for their parents, who are largely boomers and older Gen Xers, and they may find themselves struggling to make the right financial choices.
GOBankingRates spoke with Loretta Kilday, a consumer finance expert and a spokesperson for Debt Consolidation Care about the biggest money mistakes millennials make, and what to do instead.
Neglecting To Budget
Budgeting can be challenging for any age group, but it may come less naturally to millennials, who’ve grown up with more digital financial tools and less of a need to write paper checks. According to Kilday, “Creating a budget allows you to understand your income and expenses clearly. It helps you prioritize your spending, identify areas where you can cut back, and allocate funds toward your financial goals, such as saving for emergencies, paying off debt, or investing.”
Accumulating Excessive Debt
In difficult times, millennials may be turning to credit cards or personal loans to ease gaps in income. However, these often come with high interest, which, Kilday said can significantly burden your finances. “Instead of piling up debt, focus on responsible debt management. Pay more than the minimum payment each month, explore options for consolidating loans to reduce interest rates, and consider refinancing student loans for better terms,” she offered.
Overspending on Housing
Buying a home today is not as affordable for millennials as it was for their parents and grandparents. As such, millennials may be getting in over their heads on housing. “Housing costs can take up a significant portion of your income,” Kilday said. “To avoid financial strain, be realistic about what you can afford. Consider renting with roommates, opting for a smaller home or apartment, or exploring affordable areas with reasonable rental or housing prices.”
Impulsive Spending and Lifestyle Inflation
Millennials are not alone in frittering away money on things they don’t really need, or that they could wait to purchase. However, Kilday pointed out, “Mindful spending is crucial for avoiding debt and financial stress. Differentiate between needs and wants, and practice delayed gratification. Avoid succumbing to lifestyle inflation when your income increases by automatically increasing your spending. Instead, save or invest the extra money to achieve your financial goals faster.”
Neglecting Insurance Coverage
Being in one’s 20s to 40s is still young, and many millennials may feel that old age is far off, and thus not worry too much about insurance coverage for everything from health to home. “Adequate insurance coverage protects your financial well-being,” Kilday said. “Evaluate your insurance needs, such as health insurance, disability insurance, or renter’s/homeowner’s insurance, and ensure you have appropriate coverage to safeguard yourself and your assets.”
Failing To Save for Emergencies
An emergency fund is a crucial financial safety net that many millennials may not prioritize having. With the economy as unpredictable as it has been in the past few years, especially, it’s important to try to save three to six months’ living expenses in a separate account. “Having this cushion will help you navigate unforeseen expenses, such as medical bills or car repairs, without relying on credit cards or loans.”
Overlooking the Importance of Investing
Millennials may get hyper-focused on the present moment, whether they’re living paycheck to paycheck or just not thinking ahead. However,investing is key to long-term wealth building, Kilday said. “Educate yourself about basic investment principles and strategies, such as diversification and asset allocation. Consider investing in low-cost index funds, exchange-traded funds (ETFs), or utilizing robo-advisors to get started. Investing early allows you to take advantage of compounding growth over time.”
Not Saving for Retirement
One of the most important forms of investing is doing so for retirement, Kilday said. “Putting off retirement is the worst thing you can do. It may seem silly to think about how you will pay for your old age when you’re still young, but, she said, “if you save a little bit now, you’ll have a lot more in the future, thanks to the magic of compound interest or investment growth. If you wait too long, you’ll have to pay for other things with your money, and it will be hard to save enough for your old age.”
Overspending on a Wedding
Kilday reported that The Knot’s 2018 Real Weddings Study discovered that millennials spend an average of $33,931 on their wedding. “This is just the first of many costs you’ll have with your new partner. Setting up a home with someone else is expensive, and it gets even more costly when you have kids and a mortgage. Starting with a wedding bill hanging over your head is a big disaster.”
Not Exploring Student Loan Repayment Options
Millennials with student loan debt also make a big mistake by not finding the best plan to pay back their loans, Kilday said. “They are either putting off dealing with their loans by using deferments, aren’t checking to see if they are eligible for loan repayment, or aren’t shopping around for better deals regarding interest rates and terms.”
Fifty percent of people with student loans are eligible for some kind of loan forgiveness, either in full or in part, she explained. Think of it as free money.
“Instead of putting off your loan payments, consider getting on an income-based repayment plan and making affordable monthly payments. These payments can’t be more than 10-15% of your income… so if you can’t pay them, you need to look at the rest of your spending.”
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