Millennials have a lot of great causes they’re passionate about. However, according to Credit Union Journal, managing their money doesn’t seem to be one of them. It’s never too early to start consciously managing your money and strategically planning for the future. The following are seven mistakes millennials often make when managing their money.
1. Believing You Don’t Have Enough Money to Invest
Too many people think they’re not ready to start investing until they’ve already saved thousands. It’s important to understand that most people make money by investing, not waiting until they already have a lot before starting.
CNN Money points out that there are several ways to keep things simple when making small investments. For starters, keep commissions and fees as low as possible. You should also consider using investing apps, which usually have low fees and allow you to invest as little as a few dollars.
2. Thinking You Have Time to Wait
You may have time to wait for marriage, having kids or buying your first house, but you need to start purposefully managing your money now. The great thing about beginning in your 20s is that you can start small. The earlier you start, the more modestly you can invest and still have time to build an adequate nest egg for retirement.
Even if you can’t get motivated when it comes to retirement, now is the time to at least start a savings account for a new car or a down payment on a house. The most important thing you can do is to get started actively managing your finances as soon as possible. Take your time building your finances, not waiting to start.
3. Not Paying Attention to Employer Programs
Whether it’s a 401(k) or some other type of savings program, if your employer is offering it, you almost certainly want to take advantage of it. You’re basically giving up free money if you don’t participate in your employer savings program.
Besides a traditional 401(k), an employer may be offering other types of savings programs. Investorjunkie lists several other employee savings programs you may have access to. These can include Roth 401(k) plans and Simplified Employee Pension (SEP) plans. There are also 403(b) plans, which are often offered by nonprofit organizations.
4. Not Understanding Taxes
Very few people, no matter how old, completely understand the current tax code. If possible, you should hire a tax professional to do your taxes. You’ll likely save enough to make it more than worth the cost. If that’s not an option, there are still simple tips to follow that can save you money.
According to Entrepreneur, you may need to adjust your withholding rate so you’ll end up owing less or possibly receiving more in a refund. Keeping track of out-of-pocket expenses that are job-related, such as transportation, can increase the amount of deductions that you can claim. There are also deductions that can be taken for student loans. Understanding taxes can definitely add up financially.
5. Failing to Diversify
The old saying, “Don’t put all your eggs in one basket,” is especially true for finances. Start out simple. A savings account, an IRA and contributing to a 401(k) are good ways to diversify your money without taking on anything too complicated.
You might also want to consider investing in the stock market. Many millennials have a fear of the stock market because they grew up during the Recession, when the market tanked. However, not all stock market options are created equal. There are apps and tools available that can help you dissect all your stock options.
6. Confusing Good and Bad Debt
There are definitely differences among the types of debt you may be carrying. Good debt is considered something that will likely grow in value over time. Bad debts are items that will depreciate in value. Debt.org states that items such as a mortgage, a small business loan, or sometimes debt consolidation would be considered good debt.
Bad debt would normally include things such as credit card debt and car loans. A vehicle may be a necessity, but there are a few tips to follow to keep this type of debt as low as possible. If you’re going to take out a car loan try to buy a used vehicle and save up for as large of a down payment as possible.
7. Not Having an Emergency Fund
No matter how much money you make or what stage of life you’re in, it’s necessary to have money set aside for unexpected expenses that inevitably come up in life. Emergencies are things like paying the rent after losing your job or paying for unexpected medical bills. It’s important not to use the fund for a spur-of-the-moment beach vacation or a shopping spree at your favorite store.
The best way to start an emergency fund is to open a separate account at your bank and contribute a small amount each week. If possible, have it set up so the amount is automatically deducted from your paycheck. You probably won’t miss $20 a week from your paycheck, but after only a year you’ll have over a $1,000 in your emergency fund.
Now is the time to start planning your financial future! You need to get connected to a company that can help you invest wisely while impacting the world around you. Newday can help you get started in impact investing by finding sustainable companies. Whether your passion is gender equality, animal protection or ocean health, Newday can help you create an individual investment plan to meet your personal goals. Contact Newday for more information.