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LIKE THE OLD SAYING GOES, MONEY MAKES THE WORLD GO ‘ROUND. DON’T WASTE IT WITH THESE MONEY MISTAKES
Are you trying to live your best life, but money is a constant worry? You’re not alone!
Baby boomers or Gen X-ers will happily tell anyone who will listen that “kids these days don’t know how to handle their money!” And while millennials will be the first to tell you that Gen Zs are the real kids, it’ll be hard to find one who has no regrets about their spending.
No matter your age, how you handle your money can be a deal-breaker. Knowing what money mistakes to avoid can be hard without some help.
Stop buying coffees can only get you so far. It’s true that every little helps, and you shouldn’t throw away your money on the things that you don’t make you happy.
But the real mistakes you are making don’t have anything to do with a $5 latte.
If you find yourself always waiting for your paycheck to land in the bank account, check out these major money mistakes you need to avoid today.
8. Focusing only on the present
Millennials are known as the generation that lives in the moment. They can get swept up in irresponsible spending between FOMO and the desire to strive for experiences instead of material wealth.
Poor financial planning can lead to a trouble-filled future.
While you’re busy living in the moment, your future is far from your mind. Why start a 401k plan that you won’t touch for years? And don’t even get started about how hard it is to keep out of your savings!
But if you are stressed about money now, how do you think you’ll feel about not having any money when you are getting old and won’t have the same energy?
Living for the moment isn’t necessarily bad – it can be a rewarding way to live once you have the money for it. In the meantime, focus on choosing what areas of your life are worth living in the moment and which areas you can be frugal with.
Research different ways to save. From retirement accounts to allocated spending money, there’s a method of saving that’s perfect for every lifestyle. The important part is to find it.
You should also change the way you think about saving. While living in the now feels great, saving for your future can provide a sense of security you can’t find anywhere else.
7. Waiting to start saving
When it comes to saving, the earlier you start, the better.
It’s easy to push off saving when you feel like you aren’t making that much. Why put money aside for the future when you need to make a car payment today?
Between the rise of housing prices and overwhelming student loan debt, millennials face a higher cost of living than ever before. To make ends meet, they’ll be expected to work for longer periods in their lifetime than their grandparents – or even their parents!
The truth is, no one likes to see hard-earned money go unspent. However, putting money straight into a savings account today is just another vital step towards building a comfortable, stress-free future.
Don’t forget about compounding interest.
Luckily, most savings accounts offer competitive APYs, or annual percentage yields. Based on regular and compounding interest, this percentage can be used to figure out how much money you will make after having your savings account for a year.
The sooner you start, the sooner you’ll begin to earn money on your savings. Figuring out how much you’re missing out on is easy with an APY calculator.
For example, let’s pretend you’ve signed up for a savings account with an online bank with an APY of 1.5% monthly.
If you start with a $25 deposit and continue to add $25 for the next 2 years or 24 months, you’ll end up with a total of $634.47 – $9.47 more than you’ve actually put in.
However, if you wait a year before beginning to make monthly payments of $25, the total amount you will see at the end of two years will be closer to $352, with interest earning closer to $3.
Clearly, starting sooner rather than later is mathematically your most lucrative option.
This might not seem like much today…it’s such a small amount. But think about this effect multiplied over 30 years! That is the power of compound interest!
6. Measuring the cost of things with money
Every time we buy stuff, we end up exchanging our life for things that we own.
Stop measuring the cost of things with money and start to think about the amount of time you are trading for your possessions.
- What’s Your Work Time Worth?
- Calculate the real value of each hour you work. If you make $40,000 a year and you work 40 hours a week, you are really making around $15 per hour.
- Now that you know the real value of each working hour calculate the life cost of everything you buy. A $5 cup of coffee? 15 minutes of your life. A $500 handbag? A bit more than 33 hours of your life. A $500k house? 33,333 hours (around 16 years of your life!).
- Before you spend your money, always think: is it worth it?
5. Not Having A Plan To Get Out Of Debt
In 2018, studies reported that millennials aged 25-34 have an average of $42,000 in consumer debt, not including student loans. How did this number get so big?
Building debt has never been easier: and that’s one of the biggest money mistakes you can make at any age! Swiping a credit card or financing big purchases like couches, phones, and TVs make falling into debt seem almost inevitable.
And once you’ve made the mistake of falling into a cycle of debt, it can be impossible to escape. Interest rates and penalty fees for late-payments add to the total amount you owe. If you drop the ball even once, you might as well kiss hundreds of dollars from your pocket goodbye.
You should always have an action plan for handling your debt.
Before you take on any debt, you should crunch some numbers and plan ahead of time. Coincidentally, this is also the first step in building a budget.
Make a list of everything you currently pay for a month, including:
- Utility bills
- Entertainment funds
- Existing loan payments
Add those together and subtract the total number from the amount of money you make monthly. The difference between these two numbers will give you an idea of how much you can afford to take on new payments.
Round up – and be generous.
Let’s say you have about $200 left over after your monthly bills. If the new debt payment is around $100, you should be able to afford it. But what if something happens, and that $200 drops to $100?
Having a savings account will not only help for your future after retirement, but it can also help when money is tight. To keep your debt from harming your credit score, you want to make payments on time and in full.
If the amount of money you have left over after your monthly bills isn’t enough to cover a new monthly payment, you may want to consider getting a new income source. This could mean taking on a second job or finding a way to make extra money.
Avoiding debts you can’t afford may seem straightforward, but it can be impossible to do without planning. Make sure you’ve covered emergency scenarios, surprise bills, and any other excess spending that might take away from paying off debts.
4. Failing to Invest
Investing is one of the easiest yet least popular ways for millennials to make money. Thanks to the rise of debt and cost of living, millennials tend to be more averse to risk – making the idea of gambling on stocks and bonds seems much more questionable than it actually is. And don’t get me wrong! I had my own share of fear when it comes to investing!
But it has been one of the most important steps for me to reach financial freedom.
While investing can seem difficult if you are not experienced, putting money into a growth vehicle can be one of the easiest ways to make a new income.
All it takes is a little research.
There are tons of different ways to invest, including:
- Dividend stocks
- Index funds
- Real estate investments
- Mutual funds
Each investment type has its own pros and cons. The key to getting the most bang for your buck is to do your research on the market, payouts, and amount of attention each method requires.
Of the various types, dividend-paying stocks may require the most attention to detail. Index funds and ETFs are alternative types of investments that use a passive investment strategy to allows a more hands-off investing approach.
If you’re looking to start investing, there are tons of robo-advising apps and programs available to help beginners build a portfolio.
Some of my favorite:
These programs use algorithm-driven technology that allows even the most uncertain of investors to create a lucrative portfolio that is right for them.
3. Not Knowing How Much You’re Spending
It’s not uncommon to lose track of how much you’re spending. In fact, it can be hard to remember every swipe of a debit card, tap of your Apple pay app, or Venmo you send. Most millennials can blow through their entire entertainment fund in a single day without even thinking about it.
And it’s not all about careless spending. Like monthly subscriptions and automatic payments, some bills seem to appear out of nowhere when you’re not on top of your due dates.
Don’t get swept up by convenience.
The best way to avoid losing money is to pay attention to each payment you make. Take note of every purchase you have, and keep them in mind when planning to make future payments.
How to track your spending
There are tons of different tools you can use to keep track of your spending. Some of the most popular methods include:
- Old school pen-and-paper
- Budgeting apps like Mint, Acorn, and Albert
- Spreadsheets on Google Sheets
- Banking apps
Most of these methods can be done online, on your computer, and even on your smartphone. If you need extra reminders, most apps offer push notifications to warn you when you’ve reached your spending limit.
You can check out my own free monthly budget template if you need help tracking your spending.
2. Not Having Enough in Emergency Savings
Unlike saving for retirement – a time that most millennials see as a million years away – emergency funds are for the here and now. Life can be unpredictable, and it’s important to always have a nest egg to help when times get rough.
What if you need to drive your car to go to work and all of a sudden it breaks down? You urgently need $3,000 to repair it, but your bank balance is $0. Sure, you can put that debt on a credit card, but you’ll end up paying tons of interest for no reason and end up in debt.
There are a ton of things that might count as an emergency, including:
- Medical issues
- Job loss
- Sudden debts
- Natural disasters
- Car troubles
An emergency fund will protect you from taking a financial blow in tight situations. Ideally, you should have enough in your savings to make up for at least 6 months of job loss. However, any amount of emergency savings can go a long way.
1. Spending more than you earn
Hands down, the most damaging money mistake millennials make is spending more than they have. This often goes hand-in-hand with not knowing how much you spend – it’s impossible to know whether you can afford to buy something if you don’t keep track of your money.
The idea of not buying what you want, when you want can seem like the straw that breaks the camel’s back. What’s the point in working if you don’t get to enjoy what you make?
Living within your means doesn’t have to be the end of the world.
Tally up all of your monthly spendings, including bills, money spent on food, and money used for fun. If this number is more than the amount you make every month, it may be time to start making some changes to your spending habits.
Luckily, these changes don’t have to be drastic. There are tons of ways to save on items you buy or use every day, including meals, power bills, and even your treat yourself activities.
And once you get your spendings back on track, another way to afford to do all the things you love is to make more money: don’t leave a big raise on the table, or spend a few hours during the weekends on a side hustle that can bring you extra income.
Millennials waste money every day. Our world rotates around spending money without considering the consequences from paying for an unnecessary streaming service to overpaying for brand-name electronics.
Avoiding money mistakes isn’t hard. All it takes is a little mindfulness and a ton of self-discipline.
Don’t let that money burning a hole in your pocket rule the way you live. Set your mind and put your money to work today.
And if you need any help managing your money, send me a message in the comments below, and I’ll be more than happy to help!
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