Are you trying to live your best life, but money is a constant concern?You're not alone!
Baby boomers or Gen X-ers will happily tell anyone who listens that "kids these days don't know how to manage their money!" And while millennials will be the first to tell you that Gen Z are the real kids, it's going to be hard to find someone who doesn't have regrets about their spending.
Regardless of your age, how you manage your money can be an issue.Knowing what money mistakes to avoid is difficult without help.
Stopping buying coffee can only go so far.It is true that every little help and you should not throw away your money for things that do not make you happy.
But the real mistakes you're making have nothing to do with a $5 latte.
If you always find yourself waiting for your paycheck to arrive in your bank account, check out these important money mistakes you need to avoid today.
8. Focus only on the present
Millennials are known as the generation that lives in the moment. Between FOMO and the desire to seek experiences instead of material wealth, it can be easy to get dragged into irresponsible spending.
Poor financial planning can lead to a future full of problems.
While you are 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 start on how hard it is to keep your savings away!
But if you're stressed about money now, how do you think you don't have money when you get older 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 to do it.In the meantime, focus on choosing which areas of your life are worth living in the moment and in which areas you can be frugal.
Look for different ways to save.From retirement accounts to allocated spending appropriations, there is a perfect saving method for every lifestyle.The important part is finding it.
You should also change the way you think about saving.While living in the hour is 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 sooner you start, the better.
It's easy to give up saving when you feel you haven't earned much.Why set aside money for the future when you need to make a payment in the car today?
Between rising house prices and overwhelming student debt, millennials face a higher cost of living than ever before.In order to make ends meet, they are expected to work for longer periods of their lives than their grandparents – or even their parents!
The truth is, no one likes to see hard-earned money unspent.However, putting money directly into a savings account today is just another critical step towards building a comfortable and stress-free future.
Do not forget about compound interest.
Fortunately, most savings accounts offer competitive APY or annual percentage returns.This percentage, based on regular, compound interest, can be used to figure out how much money you'll make after having your savings account for a year.
The sooner you start, the sooner you will start earning money with your savings.Understanding how much you're missing out on is easy with an APY calculator.
For example, let's pretend you registered a savings account with an online bank with an APY of 1.5% monthly.
If you start with a deposit of $25 and keep adding $25 for the next 2 years or 24 months, you'll end up with a total of $634.47 – $9.47 more than you actually made.
However, if you wait a year before you start making monthly payments of $25, the total amount you'll see at the end of two years will be closer to $352, with interest approaching $3.
Clearly, starting earlier rather than later is mathematically the most profitable option.
This may not seem like much today… It's such a small amount.But think of this effect multiplied by 30 years!This is the compound power of interest!
6. Measuring the cost of things with money
Every time we buy things, we end up exchanging our lives for things we own.
Stop measuring the cost of things with money and start thinking about the time you're trading for your goods.
- How much is your working time worth?
- Calculate the real value of each hour you work.If you make $40,000 a year and work 40 hours a week, you're really making about $15 an hour.
- Now that you know the true value of each working hour, calculate the cost of living of everything you buy.A $5 cup of coffee?15 minutes of your life.A $500 purse?Just over 33 hours of your life.A $500,000 house?33,333 hours (about 16 years of your life!) .
- Before you always spend your money: is it worth it?
5. Not having a plan to get out of debt
In 2018, studies reported that millennials between the ages of 25 and 34 have an average of $42,000 in consumer debt, excluding student loans.How did this number become so big?
Building debt has never been easier: and this is one of the biggest money mistakes you can make at any age!Swiping through a credit card or financing large purchases such as sofas, phones, and TVs makes it seem almost inevitable to fall into debt.
And once you've made the mistake of falling into a debt cycle, it can be impossible to escape.Interest rates and penalties for late payment are added to the total amount due.If you drop the ball even once, you might as well say goodbye to hundreds of dollars from your pocket.
You should always have an action plan to manage your debt.
Before taking on any debt, you should crunch a few numbers and plan ahead.Coincidentally, this is also the first step to building a budget.
Make a list of everything you currently pay for a month, including:
- Entertainment funds
- Existing loan payments
Add those together and subtract the total number from the amount of money you earn monthly.The difference between these two numbers will give you an idea of how much you can afford to accept new payments.
Round up and be generous.
Let's say you have about $200 left after your monthly bills.If the new debt payment is around $100 dollars, you should be able to afford it.But what if something happens and that $200 goes down to $100?
Having a savings account will not only help for your future after retirement, but can also help when money is limited.To prevent your debt from damaging your credit score, you want to make payments on time and in full.
If the amount of money left over after your monthly bills isn't enough to cover a new monthly payment, you might want to consider getting a new source of income.That could mean taking on a second job or finding a way to earn extra money.
Avoiding debts you can't afford may seem simple, 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. Lack of investment
Investing is one of the easiest but least popular ways for millennials to make money.Thanks to rising debt and the cost of living, millennials tend to be more risk-averse: 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 share of fear when it comes to investing!
But it was one of the most important steps for me to achieve financial freedom.
Although investing may seem difficult if you don't have experience, investing money in a growing vehicle can be one of the easiest ways to get a new income.
Just a little research.
There are several ways to invest, including:
- Dividend shares
- Index funds
- Real estate investments
- Common investment funds
Each type of investment has its pros and cons.The key to getting the most out of your buck is to do your market research, payouts, and the amount of attention each method requires.
Of the various types, dividend-paying stocks may require the utmost attention to detail.Index funds and ETFs are types of alternative investments that use a passive investment strategy to enable a more practical investment approach.
If you're looking to start investing, there are tons of robo advisory apps and programs available to help beginners build a portfolio.
Some of my favorites:
These programs use algorithm-based technology that allows even the most uncertain investors to create a profitable portfolio that suits 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 shot of a debit card, tap the Apple Pay app, or Venmo you send.Most millennials can go through the entire entertainment fund in a single day without even thinking about it.
And it's not just about neglected expenses.Some bills, like monthly subscriptions and automatic payments, seem to pop up out of nowhere when you're not at the top of your deadlines.
Don't get carried away by convenience.
The best way to avoid losing money is to pay attention to every payment you make.Take note of every purchase you have and keep this in mind when planning to make future payments.
How to keep track of your expenses
There are tons of different tools you can use to keep track of your expenses.Some of the most popular methods include:
- Old school pen and paper
- Budget 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 notify you when you've reached your spending limit.
You can check out my free monthly budget template if you need help keeping track of your expenses.
MONTHLY BUDGET TEMPLATE
Download my monthly budget template as a printable version or spreadsheet!
2. Not having enough in emergency savings
Unlike retirement savings — a time most millennials see a million years later — 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 tough.
What if you need to drive your car to get to work and suddenly breaks down?You urgently need $3,000 to fix 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 lot of things that could be considered an emergency, including:
- Medical problems
- Job losses
- Sudden debts
- Natural disasters
- Problems with the car
An emergency fund will protect you from taking a financial hit in difficult situations.Ideally, you should have enough savings to make up for at least 6 months of job loss.However, any amount of emergency savings can go a long way.
1. Spend more than you earn
Without a doubt, the most damaging monetary mistake millennials make is to spend more than they have.This often goes hand in hand with not knowing how much you're spending: it's impossible to know if 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, may seem like the straw that breaks the camel's back.What's the point of working if you can't enjoy what you do?
Living within your means doesn't have to be the end of the world.
Take note of all your monthly expenses, including bills, money spent on food, and money used for fun.If this number is higher than the amount you earn each month, it might be time to start making some changes to your spending habits.
Fortunately, these changes don't have to be drastic.There are many ways to save on items you buy or use every day, including meals, energy bills, and even your personal activities.
And once your spending gets back on track, another way to allow yourself to do everything you love is to make more money: don't leave a big raise on the table, or spend a few hours on weekends on a side hustle and bustle that can bring in extra income.
Millennials waste money every day.From paying for an unnecessary streaming service to overpaying for branded electronics, our world revolves around spending money without considering the consequences.
Avoiding money mistakes is not difficult.All it takes is a little awareness and a lot of self-discipline.
Don't let that money that burns a hole in your pocket rule the way you live.Decide and put your money to work today.
And if you need help managing your money, send me a message in the comments below and I'll be more than happy to help!