It is no secret that making wise decisions about money at a young age can have an enormous impact on your life and your future. Those wise decisions may accrue throughout your lifetime to produce enormously positive financial outcomes. However, we all know that making those wise decisions during our youth is challenging. It’s difficult even when we know better. So below we have listed five common pitfalls that early investors can watch for:
- Not saving for retirement – Start saving money into a retirement savings account, 401(k) or IRA, early in life so that the savings may build upon savings over the years. Failing to invest in a 401(k) may also mean losing out on free money from your employer, as many employers match your contributions. If you have no access to a 401(k), save in an IRA.
- Eating out too much – Expenses for eating out can add up very quickly. For the young and social, eating out may be a significant part of social life. But even a portion of this money tucked away, rather than eating out, would amount to considerable savings over the course of 30 years.
- Renting instead of buying – As of early 2018, home ownership in most metropolitan areas costs about the same amount or less than renting after just two years of owning the home. And if you sell or rent the home in the future, you will likely recoup a lot more of your money than if you rent.
- Neglecting your credit score – Good credit is a must for a sound financial future – establish and keep a good credit score.
- Not saving for emergencies – Most experts suggest a “rainy day” fund of 6-12 months of expenses in a readily accessible place, such as a savings account. This is the best way to avoid sabotaging long-term savings.
Previous generations have viewed financial success differently. Therefore, some myths have cropped up regarding the way Millennials are handling their money. Some are quite inaccurate. For example, “millennials aren’t saving for retirement.” In fact, they may be doing better than their predecessors. According to the most recent Survey of Consumer Finances, households headed by someone under the age of 35 have a median $12,300 in retirement savings. The National Institute on Retirement Security reports that of millennials who are eligible to participate in employer plans, 9 out of 10 do. And they do at rates that meet or exceed other generations.
Another myth is that “millennials spend frivolously.” Well, according to NerdWallet’s analysis of last year’s Consumer Expenditure Survey, millennials actually spend less in several “frivolous” categories, like clothing, entertainment and alcohol. And that myth about job hopping—Pew Research Center of government data found that college-educated millennials actually have longer histories with their employers than Gen X workers at the same age.
Have a great weekend!