If previous generations, including Baby Boomers, focused on saving their money, millennials are often finding new and creative ways to spend theirs.
A 2016 Harris poll shows that nearly 80% of millennials do not invest in the stock market. The main reasons are a lack of money and a lack of knowledge. Over 40% of those surveyed said they don’t have enough money to invest, while 34% admitted they don’t even know how investing works.
Some people might say that millennials suffer from ‘Peter Pan Syndrome,’ meaning they’re so focused on enjoying the present that they forget to plan for the future, especially when it comes to their finances. If you’re in your twenties and haven’t been paying attention to your money, it’s important to be aware of these financial pitfalls.
Ignoring Debt
You can’t just wake up and have your debt disappear like a bad dream. If ignored, debt can become a real-life nightmare, keeping you up at night. It’s crucial to manage your debt by creating a budget and a payment plan before it overwhelms your finances. Start by listing all your income and expenses, then organize your debts by priority. Remember, the largest debts aren’t always the most urgent. Prioritize them based on interest rates, risk, and penalties for late payments.
Not Investing
Despite economic uncertainties, investing remains the most effective way to build wealth. However, even the most diligent and budget-conscious millennials often shy away from investing. It’s time to wake up! Living in the moment doesn’t work for your finances if you want to achieve financial independence.
There are many investment options available depending on your risk tolerance. A good choice for beginners is Unit Investment Trust Funds (UITFs). If you don’t have the time or knowledge to manage a stock portfolio, UITFs might be worth considering.
Not Having an Emergency Fund
Emergencies can happen anytime, so it’s essential to have a fund set aside for unexpected events like natural disasters, medical emergencies, economic downturns, or unemployment. Think of this fund as a way to avoid falling into more debt.
Keep your emergency fund in a separate account so you don’t accidentally spend it on non-essential items like a shopping spree or vacation.
Relying Too Much on Credit Cards
Credit cards can be incredibly convenient and helpful, but they can also lead to financial trouble if used carelessly.
If you’re low on cash, avoid making large purchases and always include your credit card payments in your monthly budget. Choose a card that fits your lifestyle, ideally one that aligns with your saving and spending habits.
Impulse Buying
Clearance sale? Discounted flights? 50% off? Should you give in to these tempting offers? Maybe, maybe not—it depends on your cash flow and how much you have saved. But you should always try to avoid buyer’s remorse, which is when you buy something expensive only to realize you didn’t actually need it.
You don’t want to feel like a king one day and then struggle until your next paycheck. The general rule is to avoid overspending: live within or below your means and save at least 30% of your income. Don’t worry, those new sneakers or designer bags can wait until December.
