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Millennials, aka the generation Y born between 1981 and 2000, are often considered entitled and unprepared for the real world. Sadly, this stereotyping is not too far from the truth. The personal finance for millennials leaves a lot to be desired.
According to research funded by the National Endowment for Financial Education® conducted by George Washington University, less than 25 percent of the millennial generation have had any financial education — with only 7 percent showing a high level of financial literacy.
Millennials, more often than not, feel insecure when it comes to their personal finances. And, there’s a reason. Most of them splurge away on smartphones, high-tech smart gadgets and electronics, restaurants, clothing, and gas. No wonder, their biggest source of debt is either because of credit card bills or student-loan debts.
While some do manage to reach key milestones, most of them struggle with basic money management and long-term financial planning.
Isn’t it time for millennials to start thinking about their financial health? Well, we’ve listed out some financial mistakes that millennials should stop making right away. In addition, we also have some helpful tips regarding personal finance for millennials.
5 most common financial mistakes that millennials make
Life is much more than owning enviable social media accounts and crazy postings. You’ve got to get your life’s economics on track too. Here are some mistakes that a Gen Y needs to avoid making at all costs.
1. Not checking credit scores
Your credit score is a good measure of how reliable you’ll be to money lenders. Higher your credit scores, the more chances you’ll have of getting a loan — that too at a favorable interest rate.
Unfortunately, the lure of spending becomes too much once a person turns into a young adult. The predatory credit card companies, for starters, offer you the ultimate money dream — the power to spend now and pay later. The wisest thing to do is to resist such too-good-to-be-true temptations and curtail your spending habits.
In order to keep good credit scores, it’s best to keep a low debt-to-income ratio and pay your bills on time. Checking your credit reports regularly will help you be sure that there are no mistakes and that you’re on the right track.
2. Not realizing the importance of high-yield savings accounts
A high-yield savings account is a great way to make your money grow. Most banks are willing to pay you to keep your money with them, much more than a typical standard savings account with an interest rate of about 0.09%. It’s a good idea to open high-interest-rate savings accounts that offer 10 to 20 times the average compound interest rate of a standard savings account!
3. Not creating a realistic budget
Creating a budget for a task at hand is much more than splitting your finances. It’s actually about understanding your priorities and your finances. The biggest problem that most millennials face is starting a budget and sticking to it!
It’s a good idea to categorize the spending based on essentials (energy bills, utilities, house rent/mortgage, or groceries), savings (creating an emergency fund, saving for retirement, buying a house, or planning a wedding), and lastly fun expenditures such as travels, eating out, or parties.
This will give you a clear idea of how much money you’re spending and whether you’re in a good financial situation or not.
4. Not saving enough money for retirement
Retirement is often the last thing on a millennial’s mind. But, that’s a grave mistake. Opening an IRA early on is the key to having a good amount of saving for later years. The earlier you start investing, the sooner will your investment grow. Women, especially, need to think about saving for retirement early, and more.
Begin by checking if your employer offers a retirement plan and other employee benefits. Keep saving money in your Roth IRA account, increasing your contribution by 1 percentage with every raise.
5. Taking things for granted
We understand that there’s something magical about the first few paychecks. And, your fingers are itching to spend it all. But, you need to keep a check on things. Life can be unpredictable. Case in point, the Great Recession which saw a lot of millennials jobless or underemployed within a short span.
There came a time when salaries were lower than those from earlier generations. One thing led to another and most millennials had to deal with a lot of financial insecurity, including high student-loan debts, bad spending habits, and a forlorn future.
Therefore, a good financial education is important. Once they know that a healthy financial standing is a key to long-term success, most millennials do well in life.
Here are some smart tips for young adults to get their financial life together.
Smart tips for a secure future
- Pay off all your debts and home loans as soon as possible.
- Improve your credits and net worth at the earliest.
- Keep long-term goals with a good, steady income to support your future dreams.
- Control your spending for long-term success.
- Have a monthly budget as well as sound savings and investments.
- Think about the future. Start early on a retirement fund to save considerable money.
Read more: Housing trends for millennials
We hope these tips help you in your financial journey and make things easier for you. We understand that big financial decisions and investments, including buying a house or remodeling a home, can be a bit overwhelming but there’s always a way to lessen your burden. Exploring your loan options is one of them.
Want to look at loans that would be suitable for you? Peruse through Kukun’s home loans for some of the best loan options.
Read more: What do millennials want in a home?