It’s no secret that millennials are having a tough time figuring out how to manage their money. It doesn’t help that they’re saddled with high student loan debt, and are paid salaries that fail to keep pace with the rising cost of living.
In fact, 30 percent of millennials are worried about spending more than they should, according to a recent Bank of America/USA Today report. The study also found that 22 percent worry they’ll run out of money by the end of the week, and 30 percent worry they won’t have enough to last through the month.
To harness some measure of control over their financial lives, millennials can start by identifying the reasons they’re spending more than they earn, creating a concrete plan of action to avoid these triggers and moving toward a better financial future. Here are several traps that can lead to bad money habits.
1. Keeping Up With the Kardashians
Instead of comparing themselves to their neighbors and peers, who are likely earning comparable salaries, millennials who overspend could be comparing themselves to celebrities and others with far greater financial means, said certified financial planner Matthew Cosgriff of LifeWise Advisors. “The proverbial Joneses no longer live just next door,” he said.
Being bombarded with these images in the media can lead millennials to spend more to “keep up.” However, there’s also a danger in comparing themselves to their peers, if in an unrealistic way.
2. Chasing an Ideal
Due to the highly curated nature of platforms like Instagram and Facebook, social media tends to promote unrealistic expectations, showcasing only the outward manifestations of an individual’s best moments. We might not know whether the overseas trip our friend took was financed, but we’re jealous anyway.
“We are an overly connected generation, and constantly exposed to the experiences and accomplishments of others,” said Tonya Rapley, founder of My Fab Finance. “Millennials often end up competing by way of social media posts, and their wallet usually suffers.”
3. You Only Live Once
Social media and instant gratification have combined to form the perfect storm known as YOLO, or “You Only Live Once.” It’s a mentality that some millennials have latched onto, speaking to their desire to live life to its fullest.
“It doesn’t help that millennials are constantly inundated with information on social media that makes them feel like pinching pennies means missing out on life experiences,” said Erin Lowry, founder of Broke Millennial. After all, there’s nothing worse than sitting at home alone on a Friday night, scrolling through Instagram only to find that your friends are all out having a good time.
You might be staying in to save money so that you can pay down more of your student loan debt. You might also find it hard not to question whether the sacrifice is worth it.
4. Optimism Without Planning
A recent survey by Merrill Edge found that 88 percent of millennials said they intend to save more in 2016, but only 36 percent plan to spend less. This appears to illustrate a viewpoint that can be destructive when it comes to sound financial planning.
5. High Student Loan Debt
Student loans are an obvious burden that can’t be ignored in terms of millennials’ spending habits. Currently, there’s a total of $1.27 trillion in outstanding student loan debt. As of Q4 in 2015, 3.4 million federal student loan borrowers are in deferment, 2.7 million are in forbearance and 3.3 million are in default, according to the U.S. Department of Education.
From a cash flow perspective, student loan debt can be debilitating. “Paying $250 to $500 per month in student loan payments on a starting salary of $50,000 isn’t an easy feat, especially for those living in expensive cities where rent and basic living expenses can add up quickly,” said Cosgriff.
6. Stagnant Wages
The fact that the median wage for millennials hasn’t budged doesn’t help, either. “Median wages have declined or remained unchanged in the last decade in four out of the top five industry sectors employing 18- to 24-year-olds,” according to a 2014 survey by Young Invincibles. A survey conducted by MoneyUnder30.com found that 75 percent of 20-somethings earn less than $50,000 per year.
7. Going Deeper Into Debt
The average student loan debt is $28,950 per borrower, according to The Institute for College Access and Success. However, student loans aren’t millennials’ only concern — 41 percent of millennials are trying to pay off credit card debt, whereas 28 percent are paying off student loans, according to a 2014 Fidelity Investments study.
“Apps and online banking are extremely convenient, but debit and credit cards make it easier to overspend,” said Rapley. Numerous studies have shown that people tend to spend more when they’re swiping plastic versus carrying cash. Plus, if millennials have little to no money left at the end of the month, they might turn to credit as a solution.
8. Lack of Financial Literacy
Millennials aren’t fully informed on how their debt will impact their lives upon graduation. Not knowing how to manage their money can make the situation worse.
“Millennials are a group uniquely saddled with debt at an incredibly young age,” said Lowry. “A pervasive lack of knowledge about personal finance often gets coupled with student loan repayments for young 20-somethings [who] are also dealing with a desire to YOLO.”
Furthermore, millennials might be susceptible to thinking they deserve nicer things once they start earning an income, said Robert Farrington, founder of The College Investor. When paired with the YOLO mentality, a lack of financial literacy can easily lead to overspending.
“After graduating college and getting my first job, I felt like I deserved to spend whatever I wanted,” said Farrington. “I went out and bought a new, expensive car, went out to eat and didn’t save.”
9. Seeking Parental Assistance
Some millennials might not be motivated to solve their financial issues because their parents are solving the problems for them. Since leaving home, nearly one-half of millennials received some kind of financial assistance from their parents, according to the Fidelity Investments study.
Parents are still footing the bill when it comes to expenses such as car insurance, cellphones and groceries, the study found. If parents continue to help their children, there’s a potential for their children to continue being dependent upon them.
10. Avoiding a Budget
The word “budget” is enough to make many people cringe — millennials included. For a generation so focused on living life to the fullest, many don’t want to be restricted. Unfortunately, they might not realize how budgets can be used to launch them toward living the life they want.
“Personal responsibility is important,” said Lowry. “Millennials are in a situation that requires creating a budget and diligence to dig out from under.” Farrington agreed and added that millennials need to maintain a budget that includes savings.
The simple fact is, without a plan, millennials who spend more than they earn will likely continue to do so. Without a goal to work toward, they might not have a compelling reason to change their money habits.
Turning Those Habits Around
Millennials who overspend should start thinking about the future, said Farrington. They should ask themselves if they want to have nice things today at the risk of their lifestyle later on, or if they want to make small sacrifices today so they don’t have to worry about the future, he added.
An accountability partner can help, said Stephen Alred, founder of Ignitefp. Instead of competing against others on social media, fostering healthy competition to improve finances between friends and family is better, he said. He also recommended making a list of what you want to buy within the next year and comparing that against your current spending habits to see if you’re spending according to your values.
For millennials who are anti-budget, Elle Kaplan, CEO and founder of LexION Capital Management, said the 20-30-50 plan works well for her clients. According to that plan, 20 percent of your income should go toward paying off debt and saving, 30 percent should go toward fun, and 50 percent should go toward necessary expenses such as utilities, rent and groceries.
If you’re spending more than you earn because you’re saddled with a huge amount of debt, you need to increase your earnings. Cutting back, which most people aren’t a fan of, will only go so far. Asking for a raise, taking on a part-time job or working as a freelancer can also help you earn more money.