4 Personal Finance Mistakes Millenials Make
This article is for all those who are:
- Young and want to get off to a good start on their path to finance
- Do not want to make mistakes that will prevent them from reaching goals
The first suggestion for such individuals is to RELAX.
It’s smart to get off on the right foot with your finances, but when you’re in your twenties and it’s also a time to have fun, explore different paths and be open to take chance. If you become too obsessed, you could miss out on satisfying and rewarding experiences. Besides, making mistakes and recovering from them is an important way to learn and grow.
That said, it’s also true that some mistakes can inflict deeper and more lasting financial damage than others, even if they don’t seem so dangerous at first glance.
The 4 Mistakes
There are four main mistakes (financially speaking) that millennials make which affects their financials badly. So listed below are the tips that will increase the chances of personal financial success.
(1) Starting Saving Late
The one mistake that prevents an individual from achieving at least some degree of financial security, is saving very late and not building sufficient emergency fund.
Everyone should build up an emergency fund which is equivalent to at least three months’ worth of expenses in a savings account, so you have a cushion in case of a job layoff or unexpected expenses.
The main point is to get into the habit of saving regularly and to maintain that regime throughout your working life.
(2) Getting into Unnecessary Debt
Personal finance theory indicates that it is permissible to acquire good debt. That is, debt on productive assets in which you earn more than you borrow. But the debt taken to maintain a lifestyle that exceeds the income is what gets individuals into trouble, called bad debt.
Before getting into debt, ask yourself:
- Is this something you really need? And if the answer is yes, then ask yourself:
- Would a less expensive version of it work for you?
And finally, consider whether the monthly principal and interest payments you’ll make for years could be put to better use by opting for a savings and investment account that can grow in value and provide a cushion against economic setbacks.
(3) Overpaying for Financial Aid
Whether it’s the annual fees you pay to a mutual fund house, or the fees you pay to an advisor for helping you choose the right funds and providing other financial advice.
The fact is that paying more than you earn reduces the returns earned and makes it harder for your savings to grow. That’s why you should control those expenses as much as possible.
(4) Not Monitoring Progress
You need to review your finances periodically – for example, once a year – to make sure you’re making progress.
The best way to know if you’re making progress is to monitor your net worth. That is, the difference between the value of your assets and liabilities, or what you have against what you owe.
If you save regularly and invest wisely, your net worth should grow over time. If it stagnates, it may be a sign that you are not saving enough, are not investing your savings wisely or have incurred too much debt.
This article has been written by Chandra Mehta.
Chandra is a seasoned banker with 35+ years of experience in banking and financial services industry. He’s a retired banker and has served as Chief Manager and Assistant Vice President in State Bank of India/or its subsidiaries. He has authored many articles on this site (allonmoney.com).