Money mistakes can be a killer regret for a young person. For instance, if you’re one of those people who think that opening up credit cards nonstop is a wise decision, by the time you’ve hit 30 years old, there’s a good chance you’re in over your head with debt and just making minimum payments each month, getting killed by high interest rates. Likewise, if you’re not saving enough money now, you may be hurting your long-term financial stability, costing you years of freedom when you get into your 50s and 60s.
For all the money mistakes out there, though, according to financial experts, there are four that are most commonly found in young people. This makes sense, too, considering many millennials are often the ones who have a tough time saying “no” to friends, fearing they’ll miss out on something by doing so, which can lead to some serious money mistakes when all is said and done. If you don’t have the cash to spend, you can’t do things, guys.
We live in a day and age where we can transfer money in a matter of seconds through an app, or, worse, buy all the things we ever wanted online. These lead to bad spending habits, and, according to a recent article from Business Insider — which spoke with financial experts about some of the most common money mistakes that millennials are making — these are the things that need to be fixed as soon as possible.
1. Many Young People Are Carefree With Spending Now, And Try To Play Catch Up Later
It might be so easy stopping into a local coffee shop to get a $5 latte on your way to work, but, guess what, it all adds up over time. That’s why it’s important to get your spending in check and save some of that coin by mixing up your routine each week.
“One huge mistake millennials make is taking a carefree approach to their money when they are young and then finding themselves having to fix bad habits or play catch up later on when they are peaking in their career or receiving an inheritance or a windfall of money,” Ashley Dixon, CFP at Gen Y Planning, told Business Insider.
Sure, it won’t kill you spending $5 on a coffee here and there, but, think about this, if you’re doing it every single day before work, that’s $25 each week. Added up over a month, that’s $100. If you only go half the time, you’re already saving $50 — which is being financially responsible.
2. Many Money Mistakes Often Focus On A Lifestyle Young Millennials Can’t Afford
According to the Business Insider piece, Dixon recommends putting aside 20 percent of your monthly paycheck into something that benefits your long-term financial goals, like a 401(k) or something else.
Spending all your income before saving any of it can create a snowball effect, Dixon said. “If you buy or rent the house, the car, the clothes, and the food based on your entire income and there is nothing left over to save for your retirement, an emergency, or a vacation, you will be forever searching for more money or have to be digging yourself out of debt.”
It might feel great getting the fancier car or nicer apartment now, but if it adds up to thousands more spent each year, you’re only doing harm to your overall financial success. Unfortunately, this is one of the most common money mistakes young people make, because they want to try and improve their lives as they get older.
3. Plenty Of Young People Don’t Pay Attention (Nor Care) About Their Credit Score
Look, you don’t need to check your credit score every single day, but it’s a good habit to at least peek every once in awhile in order to know where you stand. A credit score impacts your ability to get approved on things like rent or a mortgage, loans or opening a credit card, so having a healthy score is critical to financial success.
“Millennials are simply not aware or interested in credit,” Yoni Dayan, chief editor of Money Under 30, told Business Insider. “Credit is a double-edged sword – having good credit can make loans and mortgages much cheaper; bad credit can sink you. Millennials need to start caring more about their credit score. Now is the time to start massaging it, so that when they’re ready to make a big purchase they’ll be reaping the rewards.”
Not sure where your credit score should be? Take a look at this helpful guide from Experian to get some information and educate yourself.
4. Do Not Avoid Having An Emergency Fund
As we all know, unexpected things happen. Loss of a job. Unfortunate hospital bills. Travel costs. While we try not to think so pessimistically about things in our lives, unfortunately, that’s reality, meaning we need to plan for our financial freedoms now — rather than think we’ll just get a big salary increase and be able to do it in the future. It’s why having an emergency fund can go a long way in easing some of the tension that’s sure to pop up in life.
“Millennials can combat being unprepared for out-of-the-blue or unforeseen expenses by creating an emergency fund,” Dayan said. “This may seem daunting but by setting aside a small amount each month, millennials can be confident in their financial health and ability to address unpredicted expenses.”
Making bad money mistakes is about bad spending habits, and, no matter how much you’re earning, when a person’s used to a certain lifestyle, going back can be difficult. While we’ve all made bad decisions with our money in the past, once a person can take control and refuse to try and “keep up with the Joneses,” so to speak, it will be easier for them to start saving, live within their means and avoid potentially disastrous money mistakes that could hamper them for years.