As a millennial myself, I can say that I have fallen into each of these millennial money mistakes! Our generation faces huge financial challenges after living through The Great Recession (2008 housing market crash) and then experiencing a black swan event (the global pandemic).
I’d go as far as saying that it’s low-key traumatizing. It doesn’t feel like we’re guaranteed anything from the stock market or passive income sources. In many cases, even our jobs aren’t guaranteed. However, I truly believe that if we learn how to use money wisely and avoid making financial mistakes, we will make it out ok!
Many people in our generation have already reached financial independence and I believe you, me, and anyone else who is driven and focused on understanding how money works can gain financial independence too!
I’ve created this list so I can help you guys set yourself up for financial success!
If you’ve been making a lot of millennial money mistakes and you need help developing better financial habits, read these articles:
How to Save and Invest Your Money Wisely: 11 Essential Tips
The Ultimate Guide: How to Put Money Aside Each Month
The Ultimate Guide to Saving Money on a Tight Budget
10 Of The Most Essential Savings Account Tips
10 Millennial Money Mistakes Everyone Needs to Avoid Today
1. Keeping up with the Jones’
It’s easy to become so hung up on going to restaurants, taking selfies at different attractions, traveling, and buying cool new products because we want to post these experiences on social media. So many of us fall into this trap!
Take a moment to evaluate how much you’re spending to keep up with the Jones’ on social media by tracking your money. If you don’t already track your spending, check out my post all about it!
Oftentimes, when people post on social media, they never feel satisfied by the number of likes and comments they receive. We never quite have enough comments, so many of us go to more restaurants, concerts, and vacations, and we obsess over what we will post online to show off the adventures. Have you ever noticed yourself becoming so consumed with posting and constantly checking for notifications on your posts?
What if you decided to stop?
I found myself in this never-ending need to post on social media. However, when I stopped obsessing over posting, not only did my spending go down but so did my anxiety. I am no longer searching for that adrenaline rush from all my posts. Now, I have so much time, energy, and money to do other things!
If your experience with social media is anything like mine, I highly recommend taking an extended break and seeing how you feel after a few weeks or months away. I also recommend tracking your spending if you don’t already do that. I believe the combination will help you get in control of your money and your time!
2. Taking out loans
Our generation is mostly in our 30’s, so it may be too late for a lot of us. Our generation faced some of the biggest challenges with student loan debt in the history of the US and now, in a recent survey, 68% of older millennials are still paying off their student loans and 52% say their student loan debt wasn’t worth it.
Ok, cool. A huge percent of us already have student loan debt that we’re still paying down (including myself). So, what do we do to improve the situation?
My advice is to avoid taking out more loans. Don’t take out loans to purchase furniture. Don’t take out loans to buy a new car. And do not build credit card debt. Using a mortgage to buy a home may be okay depending on your financial situation, otherwise, avoid borrowing money.
The reason: cashflow is king.
Think about it. If you’re paying hundreds of dollars every month to pay down your debt, how are you going to save money for other things?
3. Owning too many credit cards
Credit cards are an awesome tool if you have your finances in order, but too many of us fall into the trap of opening cards to get rewards points and then spiraling deeper into debt. If you currently have credit card debt, pay off those debts as fast as possible. It’s incredibly hard to save money when you owe credit card companies.
According to CNBC, the average millennial owes $27,251 in consumer debt with an average credit card balance of $4,651! Imagine paying this back at 20% interest! All the money that you could be spending on saving or building wealth is just going into the corporate pocket. Don’t let this happen to you, and if it has already happened, make moves to stop accumulating debt, and pay it off as quickly as possible.
Once you are in a good financial position (spend less than you earn and have no credit card debt), then you can consider taking advantage of these reward companies. If you decide you want to take advantage of credit card rewards make sure to continue spending money within your means. Open only one card at a time and pay off the balance immediately.
If you’re in a good financial position and you’re looking into taking advantage of credit card rewards, check out ChooseFi’s Travel Rewards 101.
4. Not saving for retirement
According to Business Insider, The average millennial has about $8000 saved for retirement. The net worth of millennials has dropped significantly compared to those aged 18-35 in 1996. Unfortunately, this drop in net worth is due to our huge student loan problem, increased cost of living, and lower average wages. However, even though our generation is at a disadvantage financially, we can still save for retirement by automating contributions to our retirement accounts and then adjusting our budget accordingly. Remember that compound interest is a powerful tool, so even if you can only invest a small amount of money, you can still grow a massive amount of wealth over time!
5. Skipping insurance
Insurance premiums are scary! But, don’t underestimate the power of insurance. Make sure you are insured properly with health, automotive, and life insurance.
I never want you to be stuck in a situation where you need help paying a medical bill because of a lack of insurance. If you live in the USA, check out healthcare.gov if you need to find health insurance. If you need car insurance, check out Investopedia’s guide to selecting car insurance.
5. Bad investment decisions
Of the millennial money mistakes, selecting bad investments may be the riskiest. Sure almost everyone has heard about Bitcoin or Dogecoin. Some people have made hundreds or thousands of dollars off cryptocurrency, but even more people have lost money! Be careful about picking investments that are new or that you don’t fully understand.
Think about it this way, you are putting thousands of dollars that you worked hard to earn into an investment. Why not pick something that has been proven to lead to financial independence? If you want to learn more about the stock market, read The Simple Path to Wealth by JL Collins.
6. Becoming house poor
The dream of many millennials is to own a beautiful home! I am in the same group! There is nothing wrong with owning a home! It gives you a sense of belonging and pride, but make sure to understand the entire cost of owning a home before committing to one. The price of owning your own house is a lot more than simply paying for a mortgage. You also need to pay for taxes, insurance, utilities, and possibly an HOA fee. Then, if anything ever breaks, it’s up to you to fix it. Depending on your financial situation, it may be better for you to rent an apartment instead of owning a home. So, make sure to decide exactly how much you can afford before you make your purchase. If you need any help, please reach out to me as I recently purchased my first home in summer 2020!
7. Eating out (like a LOT)
How many times have you been at a restaurant and someone at your table stops to take a photo of the food before eating? This happens all the time! I’m totally guilty of doing this too!
I want to be clear that there is nothing wrong with taking photos of your delicious meal, but the obsession surrounding eating out to show off on social media can be harmful to your wallet. You don’t need to prove your worth by eating out and showing off your food all the time. It’s not worth it if you don’t have the budget for all the food you’re purchasing. Why not learn how to cook delicious meals instead? Let me know if you’d like me to start posting my own meals on this blog. XD
8. Ignoring your credit score
I ignored my credit score for years!!! I just never thought it mattered. I opened my first credit card when I worked at Macy’s as an undergraduate student in college. Employees had to open cards. I thought I was really smart because I always paid off my card immediately after using it to make a purchase despite the growing line behind me at the register. Then, a few years later, I remember purchasing something at Macy’s and noticing there was an existing $1 balance. I paid the balance and didn’t think twice about it.
Then, 6 years later, when I was trying to purchase my home, I received an email from the loan officer asking me about a “delinquency.” It turned out that $1 had SIGNIFICANTLY dropped my credit score! I explained the situation to the loan officer and she still offered me a loan, but the interest rate was just not as good as someone with an “excellent” score.
If you ever open a credit card, make sure to occasionally check your credit score. If you catch an error, you can fix it a lot easier if you catch it early!
Fortunately, I was still able to purchase a home! If you have good credit card habits, it’s not hard to improve your credit score with a little bit of effort.
9. Not having an emergency fund
If you really like living life on the edge, skip this step, but everyone else, you need an emergency fund. One of the biggest millennial money mistakes is to skip this step. I felt really anxious before I had an emergency fund, but now that I have one, I know that if my car ever breaks or if my roof leaks, I have a cash reserve to cover the cost without going into debt.
If you are still paying off debt, save at least $1000 for emergencies as quickly as you can. When you have paid off your debt, save 3-6 months of expenses (some even recommend 12 months). Even if you lost your job, this kind of cash reserve will help you!
10. Obsessing over money instead of living your best life
Finally, there are so many millennial money mistakes, and our generation has been through a lot of economic and financial crises. Don’t get so caught up in saving money that you obsess over your investment accounts. Don’t save so much money that you can’t enjoy life a little bit. We only get one, so make sure you are happy. Working 80 hours/week so you can retire early might not be better than dropping down to part-time now and taking more time to reach financial independence. We are all on a journey and it’s important to enjoy every step!
Summary
We have gone over some pretty important millennial money mistakes and I hope you have gotten something important out of this article. If you need help with your finances please feel free to reach out to me either in the comments or through email. I would love to hear from you and maybe point you in the right direction if you feel stuck!