6 Problems Millennials Have With Managing Their Money
Managing money is a topic that very few people enjoy talking about. My parents never talked to me about household bills or managing a checking and savings account. Money was rarely brought up at the dinner table, and it just seemed wrong to ask my parents about something so personal. Everything that I know about money, I have learned by reading or making mistakes. It seems that I am not alone because a recent survey revealed that only eight percent of Millennials have a high knowledge of financial literacy.
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While growing up, we were told to go to college to make something of ourselves, but the required courses did not include preparation for real world situations. I attended two colleges and I can’t recall either of them offering a course on managing money or personal finances. I was never taught how to check my credit score periodically using Credit Sesame or how to create a budget. This could be one of the main reasons that Millennials are missing the mark when it comes to being responsible with finances.
If you feel like you can’t grasp the concept of managing money, be sure that you are not making these common mistakes with your money.
1. Using Credit Irresponsibly
As we all know, using credit results in being in debt. I know a lot of people don’t like to see it that way, but it is true. Anytime you use credit, you owe someone else money and that is called debt. Of course, there are legitimate reasons to use credit, but there are a lot of Millennials who use credit irresponsibly. Using credit cards to buy luxury items that you can’t afford to pay cash for is not the way to live.
The rapper Jay-Z once said, “If you can’t buy it twice, you can’t afford it,” and I think this is a true lesson in managing money. There is no reason to put yourself further in debt just to impress other people or pacify yourself. If you want something nice that is out of your price range, save up for it. The saving process may help you to realize that you don’t even want or need that item. You may also decide that you should use your money for something else.
It is time to start managing money like adults, and stop using credit just because you see something that you want. Check out this article about good debt and bad debt to learn more about being responsible with credit.
2. Not Setting Lifestyle Goals
A common thing with Millennials is to create a ton of money goals. These goals are things like making more money and saving more money. They can even be specific like making $5,000 per month. The thing is, these are only money goals. What good is this type of goal when you don’t know have a plan for your money or life when you do end up making $5,00 per month? As you begin to make more money, the extra money will be spent quickly and it won’t even feel like you’re making more because there is no plan. You won’t feel the need to continue managing money because you are now making more money and there is no end goal.
A good practice to combat this is to create lifestyle goals. Lifestyle goals help you plan the things that will happen when you reach your money goals. A good lifestyle goal would be, “I want to make $10,000 per month from at least two different sources of income. I also want to only work 30 hours per week, take a two-week vacation each year. When I reach that goal, I am going to give back to my community.” This goal is specific and you know exactly what you are working towards. You’re able to check each thing off as you accomplish it as well as make changes to your life to reach your ultimate goal.
3. Not Saving For Retirement
Contributing to your future is very important, but many Millennials are either confused about how to save for retirement or simply believe that they have time to contribute when they are older. The thing that we all need to realize that time is running out. Each day that goes by equals interest that is being lost because you haven’t started saving for retirement.
Most employers will match retirement contributions up to a certain percentage. If you’re not taking advantage of this, you are leaving free money on the table. Your employer may say that they will match your retirement contribution up to six percent. This means that they will contribute a dollar for each dollar that you contribute to your retirement up to six percent of your salary. This could equal thousands of dollars depending on the amount that you make. Why would you choose to miss out on this type of contribution? Yes, it will lower the amount of your take-home pay now, but it will be nice when you are able to actually live off of your retirement funds.
4. Not Having An Emergency Fund
If you are familiar with Murphy’s law, then you know that whatever can go wrong, will go wrong. It is a part of life that no one can escape. The best defense that anyone could have for an emergency situation is to be prepared with an emergency fund. The emergency fund should only be used for emergencies and be replaced as soon as possible after an emergency occurs. It is better to be prepared than to stress about managing money during a crisis.
The ideal emergency fund would be three to six months worth of expenses saved in an account that is only used for emergencies. Of course, this amount may not be possible at the moment, so a realistic goal for your emergency fund is $1,000. If you are having trouble saving $1,000, start thinking outside of the box. Sell items that you no longer need on sites like Decluttr, pick up a few extra shifts at work, or try freelance writing until you have reached your goal. Keep this money in a place other than your day-to-day checking account to avoid being tempted to spend it.
5. Living On Student Loans
Student loans are a great way to help pay for college. While it would be awesome if college were more affordable, there is nothing wrong with taking out student loans if you need them. The issue with student loans is taking out more than you need to cover your tuition and fees. The excess money is given to students as a refund check. I understand that going to college means that you will have living expenses while you are away from home, but this is not the purpose of student loans.
Student loans are available to help make college more affordable. The best practice for student loans is to only take the amount that you need. If you have living expenses that need to be covered, consider getting a part-time job and work after class and on weekends. It gets tough at times, but it can be done. Your future wallet will thank you when your student loans are in repayment status.
6. Not Using A Budget
It is no secret that many Millennials are living paycheck to paycheck. The cost of living is increasing steadily, but wages and raises seem to be stagnant. With that being said, having a budget is an essential part of managing money. There is an old saying that goes, “You can’t manage what you don’t measure.” This pretty much sums up the need for a budget.
Budgeting allows you to tell your money where to go instead of looking back and wondering where it went. The goal is to create a budget that allows you to spend less than you earn. This is called living within your means. If you don’t have a budget, I encourage you to get one as soon as possible. There are several apps available to help you create a budget. My favorite budget app is EveryDollar. You are also free to go the old fashioned route and use pen and paper. Do whatever simplifies managing money for you.
The Bottom Line
As a Millennial, your work is cut out for you. You have to be driven to learn about personal finances and managing money on your own. If you are unsure where to start, create a budget then save money for your emergency fund. Things only get easier from there. Don’t be afraid to talk to an expert and ask the hard questions. Knowledge is the key to managing money. If you want more resources, check the post 7 Personal Finance Books that are Actually Pretty good
Let me know in the comments if you have made any of these mistakes. I’m also interested in how you learned to manage your money.
Resources
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