3 Common Financial Mistakes Made By Millennials
Money – fun to spend and hard to save, especially when you are young, spontaneous and in your twenties. At this age anything seems possible, the world is your oyster, and you have probably just started your first adult job with a decent income (which you’ll want to spend as soon as it hits your bank account every month.)
Unfortunately, while a lot of young people are ambitious, most tend to think only short-term when it comes to their finances with one study showing that only eight percent of Millenials have sound financial knowledge.
While your twenties is the time for fun and new experiences, the quicker you gain control and build good financial habits, the less likely you are to get into spiralling debts.
Here are three common financial mistakes made by millennials and how they can be avoided to gain financial freedom as quickly as possible.
Not having an emergency fund
As we all know, life is unpredictable, and pretty much anything can happen, especially in your twenties. It is always, therefore, recommended to have six month’s worth of salary set aside for emergencies, with a three-months minimum at the very least. This is because this should be just about enough to cover any short periods of unemployment or significant unexpected expenses without having to go into debt. Set aside a little bit of money each month, but if you find that you are struggling, try thinking of other ways you can make some extra income to contribute to your emergency fund. The important thing is that you start and you start now as you never know what life has in store. Last but not least, make sure not to spend it on anything other than emergencies and set up a savings account to store it away from your main one so that you aren’t tempted to spend it.
Living elevated lifestyles and not spending wisely
When you are young, it is very easy to overspend and overindulge – especially when you start earning your first real salary in your first professional job. You want to keep up with the latest fashions, social trends and go on holiday just like everyone else, but if you don’t keep a close eye on your spending habits, you can very quickly fall victim to debt. Most young people don’t tend to set spending patterns, which is quite normal and takes years of practice, but if you find that you are constantly living above your means and elevating your lifestyle when you don’t have the financial means to back it up, then you need to take a step back asap. To become financially savvy, you need to look and track your income and set up a reasonable monthly budget, allowing you to set some money aside, but one that won’t leave you feeling completely deprived. Remember that knowledge really is power, so learn about finances as much as you can through DTSS, podcasts and other online resources to help make the subject more manageable and less intimidating. While it will be hard at first, gaining financial control and foregoing all those little luxuries that you love so much in your twenties will be worth it when you hit your thirties happy and debt-free.
Paying the minimum on credit cards
Credit cards tend to be presented in a way that can seem like the answer to all your financial problems and can sometimes even seem like free money to those in their twenties, but as we all know, credit results in debt. Anytime you use credit you are spending money that isn’t yours meaning that eventually, you are going to have to pay it back. And while there are perfectly legitimate reasons to use credit cards, there are many Millennials who use it irresponsibly and then only pay off the bare minimum each month. By doing this, you pay the least amount that you have to without incurring a penalty. The problem with this, however, is that while it is easier to pay back less in the short term, in the long run, you will end up paying higher fees in interest. By paying just a little bit more on top, you are saving yourself potentially thousands and avoiding a situation where your debt starts to snowball. When it comes to credit cards in general, remember, using them to buy items that you can’t afford isn’t a healthy way to live and will eventually catch up with you. Start managing your money, learn to be more responsible and stop spending money that isn’t yours if you want financial freedom in the future.
For live CPA exam prep and accounting classes, join Conference Room for free. Members will be notified of course dates, times, costs, and how to attend these courses.
Get your questions answered to pass the CPA exam, and to learn accounting concepts.
Go to Accounting Accidentally for 300+ blog posts and 450+ You Tube videos on accounting and finance:
Good luck!
Ken Boyd
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
(email) ken@stltest.net
(website and blog) https://www.accountingaccidentally.com/