16 Money Mistakes Millennials Don’t Realize They’re Making
Thanks to technological advances that have reshaped financial markets and services, Millennials have amazing financial opportunities—as well as new ways to mess them up. These are the money missteps this generation is making, and the smarter moves to make instead.
Letting credit card debt pile up
While some Millennials hesitate to get credit cards, others use them a little too enthusiastically. Warns Zaino, “There is no good reason for buying things on credit that you can’t afford. The best scenario is paying off your credit balance in full each and every month. Letting it pile up just causes you to pay way more than you have to as the compound interest works against you. Don’t believe me? Take a look at your statement and see how many months it will take to pay off your current debt if you keep making minimum payments… or how many years!” Here are five smart ways to reduce debt stress.
Not saving for a rainy day
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Millennials think that since they’re young and healthy, nothing bad will happen to them. Sadly, life doesn’t work that way. Illness and accidents happen, jobs end, and no one knows what the future holds. It’s best to invest in a liquid emergency fund that could tide you over for three to six months of living expenses if the unthinkable happens. Check out these 56 simple tips for saving money.
Trusting technology over people
Millennials are more comfortable with online services for all of their financial transactions, including financial advice. According to the AMG Funds survey, 84 percent of Millennials believed they would get more objective advice from robo-advisors than live ones, and 70 percent believed that robo-advisors would provide higher returns. That’s not necessarily a bad approach, as passive funds often beat actively managed funds. However, it can leave Millennials reluctant to ask for help on financial matters, as they prefer to seek their own answers through Internet resources. A live advisor can provide a different perspective, helping you to assess your goals and create a more personalized plan.
Admits Zaino, “I’m old-school. I trust people over Fintech. And while I think it’s important to fully utilize the tech tools at my disposal, I think it’s more important to offer my clients a personal touch. And they agree, preferring to meet with me, ask questions, and bounce different scenarios off of me for my input. Plus, I operate at a fiduciary standard, meaning I’m legally obligated to act in their best interest.”
Millennials have fewer years of experience filling out their own taxes and, according to a 2016 Bank of America study, an insufficient education about them. When young Americans were asked what they wished they had learned more about in school, 40 percent listed “how to do taxes,” second only to “how to invest.”
Millennials can always turn to tax software to fill out their forms, but that won’t help with the financial planning necessary to minimize the tax burden. For example, they should learn the difference between tax-deferred and tax-exempt investments. As the federal tax laws change under the recent legislation, now is a great time to learn about taxes.
Be sure to check out these things your tax accountant won’t tell you.
Spending every raise
When you do get an increase in pay, Zaino advises, “Ignore the raise, and apply it to long-time investment goals. Maybe take 5 to 10 percent of it to spend on yourself as a reward for your hard work, but invest the rest. Look at it this way: You’ve been living without it for this long; why just blow it on instant gratification?” Learn the funny trick that can get you a bigger raise.
Paralysis by analysis
With encyclopedias of data at their fingertips, Millennials can spend days searching the Internet trying to make financial decisions. Nevertheless, all that time devoted to research still may not produce the right answer for a particular investment or purchase. Sometimes you need to make the decision with your gut instincts. Cautions Zaino, “Think about the amount of time you’re spending versus the time-value of money. You don’t want to spend two hours of your valuable time to save $2!” Don’t miss these top tips on how to manage your money.