11 Mistakes That Stop Millennials From Building Wealth

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“Oh, if I could go back and do it all over again, how differently I would have done it.” This is a sentiment we often hear from baby boomers, many of whom are now struggling to cover the costs of retirement. 

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But could we hear the same from millennials? We just might if they don’t start taking advantage of the money moves that could make them rich

Let’s have a look at 11 mistakes millennials could be making that prevent them from getting rich. 

Not Maxing Out Their 401(k) and Roth IRAs  

“The biggest mistake people make is not maxing out their 401(k) and taking advantage of the minimum they need to invest so that their employer matches,” said Rachel Ehrlich, co-founder of Klutch. “Tax advantages are crucial and they tend to be forgotten. Just adding your allowable investment into your Roth IRA every year will make a huge difference in the long term.”

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Failing To Use a Health Savings Account

“A Health Savings Account (HSA) can be a great place to save money for millennials that have to pay for high-deductible health insurance,” said Doug Carey, the owner and president of WealthTrace. “The money grows tax free and is deposited pre-tax, which means you are not taxed on the amount you contribute each year, similar to saving to a 401(k) plan. Savings into an HSA can be used to pay the premiums for health insurance and any medical expenses.”

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Paying for Subscriptions Out of Convenience 

“Many people pay for subscriptions that they do not use,” said Andrew Griffith, associate professor of accounting at the LaPenta School of Business of Iona University. “Or they pay for subscriptions that provide redundant benefits, meaning these are available to them via other subscriptions they are currently paying for. Or they pay for subscriptions when they could eliminate the cost up front with a one-time fee.

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“For example, Microsoft 365 Family sells for $99.99 per year. The perpetual license for Microsoft’s Office Home and Student 2021 is $149.99. Two years of Microsoft 365 Family costs more than the perpetual license. One can replace Microsoft 365 with alternatives such as free Google Workspace products. When a specific paid product is not necessary, a free or lower cost legitimate substitute product is normally sufficient.”

Falling Victim to Lifestyle Inflation

“The phenomenon of ‘lifestyle inflation’ or ‘lifestyle creep’ occurs when previously indulgent goods are now viewed as needs,” said Bruce Mohr, senior investment advisor at Fair Credit. “The drive to keep up with others is fostered by social media. More millennials are spending the majority of their income on goods that only give them satisfaction and prestige in the short term due to a combination of the fear of missing out and an ‘I earned it’ mentality.”

Paying Off Student Loans Too Quickly

“It might sound counterintuitive, but too many millennials worry so much about their student loan debt that they pay it down at the cost of their retirement savings,” Carey said. “Many student loan interest rates are much lower than the rate of return they can get by saving into a 401(k) plan. And that does not even take into account the tax benefits and possible contribution match from employers.”

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Not Saving Automatically 

“Automatically contributing to savings directly out of one’s paycheck keeps that person from seeing these funds in your bank account, which reduces the amount of disposable funds available to that person,” Griffith said. “I believe in saving as much as possible to fund the retirement years and doing this directly out of our paychecks.”

Investing Too Late in Life

“Investing early in life lets the power of compounding take hold,” Carey said. “The earlier people can save, the better. I always show younger people a picture of investments compounding over time. This helps give them a tangible idea of what saving early and often can do for them.

“I go through an example such as this: If a 30-year-old is able to save $10,000 to a 401(k) plan every year and earn 8%, that person will have slightly over $1.2 million saved in 30 years. But a 40-year-old who saves the same amount for 20 years would have just over $494,000. This shows the awesome power of compounding, and it is why it is so important that people start saving at a young age if they can.”

Keeping Too Much in Volatile Assets

“While more recent assets like NFTs, meme stocks, SPACs and cryptocurrencies may have appealing growth potential, ignoring their volatility puts your financial stability in severe danger,” Mohr said. “Due to social media, there is a good probability that everyone knows someone who took advantage of at least one of these opportunities to swiftly accumulate wealth.”

According to Mohr, this is also referred to as the “Shiny Object Syndrome.” 

“Younger investors trying to accumulate wealth quickly are attracted to high-risk, high-volatility assets, which can make long-term, more traditional methods of wealth accumulation, like equities, seem dull,” Mohr said. “However, investing all of your money in risky securities like NFTs or cryptocurrencies is exceedingly risky. When it comes to financial planning, preparing for the worst rather than seeking the best return is more important.”

Not Diversifying Investments

“Another mistake millennials make is not diversifying their investments,” said Kyle Marquardt, CPA and financial specialist at Homestead Brands. “When you invest, you shouldn’t put all your eggs in one basket. Instead, you should diversify your investments. That way, you’ll be less likely to lose money if one investment goes sour.”

Panicking in Recessions

“Millennials are particularly prone to this as many of us, including myself, were not at working age when the ’07 crisis hit,” said James Beckett, a writer for the passive investing website Tiny High. “We therefore do not fully appreciate how recessions can impact us. For a millennial investor, it means they might panic sell at the worst time, when they should be buying.”

Not Staying the Course

“Many millennials make the mistake of not staying the course when it comes to investing,” said John Dave, a financial advisor and the owner of Wealthy Panther. “They may see the stock market fluctuate and decide to sell their investments, only to buy back in at a higher price.”

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About the Author

Nicole Spector is a writer, editor, and author based in Los Angeles by way of Brooklyn. Her work has appeared in Vogue, the Atlantic, Vice, and The New Yorker. She's a frequent contributor to NBC News and Publishers Weekly. Her 2013 debut novel, "Fifty Shades of Dorian Gray" received laudatory blurbs from the likes of Fred Armisen and Ken Kalfus, and was published in the US, UK, France, and Russia — though nobody knows whatever happened with the Russian edition! She has an affinity for Twitter.
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