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When it comes to managing money, there isn’t one right way that works for everyone. As a financial planner, I know first-hand how personal your personal finances can be.
Millennials have different financial habits than generations before and are more likely to have lifestyle creep and delay saving for retirement. If you’re a millennial, don’t make these money mistakes.
1. Paying off debt instead of saving for retirement
Somewhere along the line, millennials started to think paying off loans was more important than building their nest egg. Having debt can be a burden, but you’ll be in more trouble if you put off saving for retirement.
Contributing to your retirement should be a top priority no matter how old you are. If you can’t save a lot right now, start small and slowly increase your savings rate over time. You might start with 5% and work your way up from there.
2. Allowing lifestyle creep
Lifestyle creep is an easy trap to fall into. I see clients who get a better job or a raise at work and buy more expensive things because they think they can afford to splurge now. You might upgrade your car because $200 a month isn’t a big deal, buy nicer shoes, or subscribe to more streaming services.
While Hulu, Netflix, Spotify, and Amazon Prime aren’t much on their own, the costs can really add up month after month. Look at what you’re spending your money on and cut out a few things. Even if it’s just a few dollars, your future self will thank you for it.
3. Not buying life insurance
Most of the millennials I work with don’t have enough money saved to take care of their family if the worst should happen. But they also don’t have any life insurance.
What millennials don’t realize is that term life insurance is cheaper than they think. For $20 to $30 a month, you could have a death benefit of $500,000 or more to protect your loved ones after you’re gone.
4. Skipping out on an employer’s 401(k) plan
The earlier you save for retirement, the better off you’ll be. The trouble is that millennials opt out of their employers’ retirement plan because they don’t think they will work there until they retire.
But you don’t have to make a long-term commitment to an employer to take advantage of their 401(k) plan. Any money that you contribute to your plan, you get to keep. If you add $100 a month and switch employers after a year or two, you get to take that money with you. It’s called vesting, and you are fully vested in your contributions at all times.
5. Risky investing
New apps and investment options are causing millennials to be impulsive about their investing. While a new app or up-and-coming cryptocurrency might sound promising, they could open you up to more risk than you can comfortably tolerate.
You should never invest money that you can’t afford to lose. Before putting money in the “next big thing,” figure out how much risk you’re willing to take on and stick with that approach. If you’re not sure, get help from a financial planner to make a strategy to reach your financial goals.