Financial independence, retire early. Or FIRE, as some people like to call it. This is a dream that many, especially young adults, want to achieve. While the road to financial independence may be a struggle to many, it gets easier when you are equipped with the knowledge of personal finance management. With the right knowledge, you can avoid making some of these common millennial money mistakes.
1. Accumulating Credit Card Debt
There’s a common misconception that credit cards are all bad, but that’s not true!
Having a credit card, using it regularly and paying off your outstanding balance on time is a good way to build a good credit score. On the other hand, when you spend beyond your means, your unpaid balance accumulates and it incurs an interest charge. Continuously overspending will cause credit card debt to build up faster than you intend, which is why it’s important to exercise discipline when using your credit card.
2. Not Having An Emergency Fund.
One of the biggest money-related mistakes millennials make is not putting away money for an emergency fund. Emergency funds act as a safety net when you’re unexpectedly hit with a large expense or loss of income. Without an emergency fund, many will often resort to using their credit card which involves high interest rates. To cover any unforeseen incidents, building an emergency fund should be a priority for young adults. An emergency fund should typically have enough money to cover about three to six months of necessary living expenses.
3. Neglecting Health
Leading a healthy lifestyle is one important step that young adults often overlook. Getting too caught up in your chase for early retirement and overworking yourself may be your downfall in the future. Eating right, staying active, and getting enough sleep are all important aspects of a healthy lifestyle. How you manage your health in your 20s will have an impact on how well you age. One way to be prepared for any unforeseen medical expenses is to purchase health insurance. While it may seem like an additional cost, your future self will thank you for it.
4. Lifestyle Creep
Lifestyle creep, sometimes known as lifestyle inflation, happens when your spending on non-essentials increases as your salary increases. Daily coffee, eating out more often, and buying more expensive clothing are all examples of lifestyle creep. The danger of lifestyle creep is that it happens over time and before you realise it, you’ve gotten used to a lifestyle that might be difficult to afford in the case of unemployment or retirement. One way to avoid this is to keep an expense tracker so that you’re aware of how much you’re spending and where your money is going.
5. Not Embracing Technology
Technology has changed industries and made our lives easier in so many ways. They can also be used to help you manage your money better. From budget-tracking apps to money management apps for managing stocks and investments, there is a range of personal finance apps that can help you manage your wealth better.
6. Not Saving for Retirement
Even when millennials have a budget, they may not set aside money for their retirement savings. While retirement may be the furthest thing from their mind, investing in a retirement account early cannot only help ensure that you have the proper funds that you will need for your retirement but also allow your money to grow longer. This means a better return on the money than would be gained by investing it later in life. For millennials without a lot of expenses, the best route may be to invest up to what the company will match.
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