Unless you have a degree in finance, chances are you entered the workforce unprepared for financial growth. As you move through life there are certain considerations you must observe, if you plan to develop a healthy financial status.
Learning about the common pitfalls that affect most people of your generation will help you avoid mistakes, so you can build a stronger financial foundation for your future. Therefore, today, I’ll be discussing the most important financial mistakes for millennials to avoid.
Dismissing the Importance of a Budget
While most millennials have heard that everyone should work with a household budget, most of them still don’t do it. While you may not think you need a budget, drafting one and starting to abide by it will show you just why you have always needed one. A budget will help ensure you’re making all of your necessary debt payments, so you don’t take negative hits on your credit.
A budget can also pinpoint areas of excessive or unnecessary spending. This could allow you to curb spending and leave more money to be diverted into your savings accounts. While you may think you do just fine without a budget, try creating one and abide by it for a couple months to see if it really can benefit your finances.
If you aren’t good with creating a budget and find that excel sheets don’t keep you on track consider using an app such as Mint or Albert. These apps are easily accessible on your phone, free, and easy to get started with.
Ignoring Your Debt
People often assume their debt will always be there waiting for them and that is correct, but ignoring it all together can cause your debt to continually impact your credit profile. Even if it helps you maintain a positive balance in your checking account, ignoring your past debts will come back to haunt you at some point.
A much wiser approach is to find a secondary source of income, such as a part-time job, and use that income strictly to pay off your debt. Once you’ve cleared your past debts, that secondary source of income could help you build wealth as well.
Now, I know, taking on a part-time job doesn’t sound like much fun. However, with the way the gig economy has developed, there are loads of things you can do on your own time that will generate income such as being a driver for Uber, Doordash, or even Amazon.
Putting Off Retirement Savings
Many young people put off saving for their retirement because they think there will be plenty of time for that later in life. This is a mistake, because a retirement savings account may be needed for more than your weekly income throughout those later years.
You may need to pay medical expenses or you may have to take up residence in an assisted living facility. By creating a plan with a financial consultant for developing a retirement account early, you’ll have plenty of time to build wealth that will help you cover these eventualities.
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Not sure how much you should be saving? Make it a goal to save at least a few thousand per year. For example, if you’re 28, you should have at least $30,000 in your retirement or investment accounts by now.
Failing to Build a Savings Nest Egg
In addition to maintaining a retirement account, you should also be building a savings account that you can use as a cushion throughout your life. Instead of blowing an unexpected bonus from your job, take a percentage of that bonus and deposit it into a money market savings account or invest in a CD.
You don’t have to save everything, but neither should you spend every leftover cent. Building a savings account will provide the resources you need to buy a home, make auto repairs, or help your child get through college.
Going Through Life Without Health Insurance
The health insurance laws and markets are confusing, to say the least, especially with how radically they seem to change with each new presidential administration. However, that’s not an excuse to resist buying the insurance you need.
While you may feel healthy, there’s no telling when that may change. An injury or sudden illness may leave you hospitalized with no help if you lack proper health insurance. Getting health insurance now and maintaining it through the years is a worthwhile investment that will help you stay in the best possible physical condition.
Additionally, if you haven’t invested in life insurance, now would be a good time to get that as well.
Failing to Develop a Plan
People of every generation tend to take things as they come and, many generations ago, that might have been the accepted method. However, the cost of living has increased many times over and letting life happen is no longer a wise course of action.
Instead, you should develop a strategy for your life just as you would create a business strategy. Make a list of the things you need to accomplish, such as buying a home, raising children, saving for retirement, buying a new car, etc. As you work with a consultant, develop a time frame for each of these life events and work out a strategy that will help you reach each goal.
Unless you’ve taken a course on personal finance, you’re probably not even aware of the financial mistakes you’re making. Sitting down with a professional can help you get a better grasp of your situation and how you can improve it.
In a broader sense, simply developing a strategy and abiding by it can go a long way toward helping you build a strong financial foundation. You’ll find that, as you become more conscious of your spending, you’ll be better able to handle your finances.
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