10 Money Mistakes Millennials Should Avoid (No. 10's a Shocker)

Mistake No. 1: Failing to Consider the Financial Consequences of Student Loans

Many people want to attend a prestigious university or earn a specific degree, but will this decision enable you to earn enough money to justify the expense? Too many people sign up for mounds of student debt without considering the financial magnitude of their monthly debt payments and the length of those payments versus their expected incomes.

Anyone considering a second degree, a master’s degree, or a doctorate should determine before borrowing money if the new degree will generate enough additional earnings to justify the expense.

If you already have student loans, now is a time to closely examine your loans and see what federal and private lenders may have temporarily suspended loan payments, halted interest payments, and relaxed terms and restrictions to help borrowers during this difficult time. If you still have considerable private student loans, you may also want to look into consolidating and refinancing them as interest rates have fallen during the coronavirus outbreak.

Mistake No. 2: Postponing Saving

People with just a little money left over after paying their bills can fall into the trap of saying that they will start to save just as soon as they can. This thinking is dangerous because as we grow older, our lives often become more expensive.

To get ahead financially, you don’t need to live within your means; you need to live beneath your means. When you get a bonus, a raise or a promotion, take advantage of the additional income and at least partially increase your savings — not just your lifestyle. Finding a way to save a little each month is really how to get ahead and make financial progress toward your goals.

Mistake No. 3: Ignoring the Financial Consequences of an Expensive Wedding

Sure, it may very well be one of the most important days of anyone’s life, but it’s also critical to make sure that you are not saying “I do” to unnecessary financial distress.

Anything with the word “wedding” in front of it is expensive, whether it’s cakes, flowers, photographers, coordinators, destinations or venues. Between parents, friends and social media, many millennials feel pressure to deliver on their big day, but there can be a very real and impactful financial trade-off between cake and punch and buffet and open bar. Think beyond Day 1. Days 2 and forward of a marriage are important, too!

Mistake No. 4: Having an Inadequate or Nonexistent 'Rainy Day Fund'

Returning from the mountains after one of our first vacations as a married couple, my wife and I learned how critical having a “rainy day fund” is firsthand! The rolling foothills proved too much for my beloved Jeep, and had we not set aside some cash in a savings account for emergencies we would have been in a real financial pickle trying to decide between taking on debt to get some new wheels, asking her father and mother for help, or talking to mine.

To make sure you don’t have to face choosing between one of those less-than-ideal options, one of the first steps to building a solid financial foundation is to save three to six months’ worth of your monthly living expenses in cash in a “rainy day fund,” so life’s curveballs won’t derail your finances. And there will be curveballs!

Mistake No. 5: Having Too Many Credit Cards

You’re at the checkout line and there’s allegedly a once-in-a-lifetime opportunity to save $25 or 10% on your initial purchase if you’ll just take a few minutes and open a store credit card. Sound familiar? We all face these temptations, and despite the short-term financial benefits or savings by opening a new line of credit, you should almost always just say no!

Buying with credit is a good way to earn points and rewards, and it offers additional fraud/identity theft protection versus using a debit card, but credit cards also require personal restraint and consistently paying off the entire balance month after month to be utilized effectively.

Find a couple of good credit cards and use them responsibly to get the perks and build up your credit score, but do yourself a favor and stay away from the temptations and hassles associated with having a credit card in your wallet for every store you’ve ever walked into.

Mistake No. 6: Buying Too Much Car

Even after careful research and knowing how much you can afford, once you take a test drive it’s easy to crave the better model with the premium wheels and entertainment package. But don’t; only get the car you need. Additional money spent on a slightly nicer ride could be used to establish a rainy day fund or boost your savings for retirement. Plus, a car is a depreciating asset — the value drops as soon as you leave the dealership.

Mistake No. 7: Buying Too Much House Too Soon

Buying a home before you can handle the financial responsibilities can quickly strain your finances. The goal for millennials should be to buy a house that meets your needs and helps build equity, not the dream house you want to retire to. For many first-time homeowners, the monthly mortgage payments and costs of maintenance, utilities and real estate taxes can be overwhelming.

As you are furnishing a house it’s also important to go at a reasonable pace and decorate at an affordable level. Buying a bunch of furniture or fancy accent items all at once can torpedo your cash or create recurring credit card debt. A new house doesn’t have to be a finished product overnight, and your first house doesn’t have to be your dream house!

Mistake No. 8: Not Saving Enough for Retirement

Many millennials realize that the retirement planning game has changed and will likely continue to do so. Pensions are headed the way of the dinosaur. Regardless of your politics, most everyone agrees Social Security benefits may not look like what they do today once it’s time for millennials to collect. That means what your retirement looks like may be pretty much up to you!

In order to build up an adequate nest egg capable of sustaining your desired lifestyle in retirement and to fund all those trips on the bucket list and the place on the beach, you need to start saving now. Make certain you are taking full advantage of any matching contributions your employer offers to your retirement plan, but also work toward contributing even more to your 401(k), to your IRA, and to a taxable brokerage account.

As counterintuitive as it sounds, market downturns are the friend of contributing investors. Similar to buying quality produce on sale at the grocery store, times like the present can offer the opportunity to buy the stocks of quality companies with high future growth potentials currently trading at a discount.

The longer your invested money has a chance to grow and compound, the larger your nest egg will likely be, and that can mean a nicer (and sooner) retirement.

Mistake No. 9: Children, But No Wills

Married couples should have a will, and those with children should definitely have one. A will helps make sure that your final wishes will be fulfilled and names the guardian of your children. As a proud father of two young kids, I can attest that even though it is probably the last thing you want to think about between sleepless nights and sippy cups, updating your estate plan needs to be done.

Mistake No. 10: Putting Your Career First

Many people I know love what they do for a living and they are really good at it. Others are burning their candle at both ends trying to hit that next sales goal or fast track that next promotion. This may surprise you coming from a wealth adviser, but I can attest that money isn’t everything.

• If the coronavirus has taught us anything during this prolonged period of staying at home and sheltering in place, perhaps it is to be careful not to lose focus on what matters most. It is noble to work hard and have a fulfilling and successful career, but make sure you aren’t always putting your job ahead of your life, your health, your family and your friends. If you do, you may end up having a lot of money and being near the top of the org chart, but yet still very poor at the same time.

Written by Tom Presley, a Partner and Wealth Adviser at Brightworth who focuses his time on developing and implementing comprehensive financial strategies for high net worth and high income earning individuals. A Certified Public Accountant and a CERTIFIED FINANCIAL PLANNER™ practitioner, Tom is a member of the fee-only National Association of Personal Financial Advisors (NAPFA).