There are five common mistakes millennials make when it comes to handling finances.
Thankfully, for every mistake there is a simple solution. And, by avoiding these common mishaps, you will be able to get ahead financially without giving up the things you love.
Time is on your side, millennials. Here are just a few of the ways you can get ahead and stay ahead this financial year.
MISTAKE 1: “Savings? What savings?”
One in five millennials don’t have a savings account, according to the Bank of America Better Money Habits poll. And, those of you who do have savings, don’t have nearly enough.
From this information, it’s a safe to assume most millennials haven’t even considered making a few voluntary contributions to superannuation accounts. In Australia, millennials have been shown to be better savers than Generation X, according to a survey by Suncorp, but there is still glaring room for improvement.
The cost of living is only going to increase over time and, by the time millennials retire, the age pension alone will not be enough to live off. By overlooking saving and superannuation, you’re making a mistake for both the short and long-term.
SOLUTION: Do a budget, open a high-interest savings account and arrange for just a small part of your pay to go into this account automatically. Discuss with your employer the possibility of increasing the percentage of your pay that goes into your superannuation account each month.
Mamamia millennials discuss buying a house, or coming to terms with not being able to buy a house. Article continues after this video.
MISTAKE 2: “Credit, please.”
Credit cards aren’t the devil (despite the number of times they’ve been referred to as just that). It’s how you use them that can make or break your finances.
Credit cards are not ‘free money’. Large purchases should be made with money you’ve saved, and not using credit cards that attract high-interest rates.
SOLUTION: Ethan Block, founder of online financial services company Digit told the Sydney Morning Herald that credit cards should not be used for short-term purchases. He suggests opting for a card that has a low limit of around $500 and setting up auto-pay to keep on top of it.
MISTAKE 3: Tracking spending is something foreign.
Millennials often don't know how much they are spending, or on what. This makes it very difficult to change spending habits, when you know you have to cut back a little. According to Business Insider Australia, millennials love to eat out and need to financially plan more effectively if they are to save and eat out regularly.
SOLUTION: Track your spending for two months and discover where your money goes and how often. Then, come up with a plan to keep doing all the things you love within reason.
MISTAKE 4: Impulse purchases are too easy.
It's very easy to spend money using smart phones these days, with apps linked to bank accounts and an increasing number of shopping outlets launching mobile friendly sites and apps of their own. Clicking a button to make a purchase takes away some of the 'thinking time' that is involved in driving to an actual shop to make a purchase. Impulse buying has never been so easy.
SOLUTION: Don't automatically link your bank account to apps and websites, and don't ask for the system to recognise your payment details in the future. This means you have to go to the effort of entering payment details every time you'd like to purchase something, giving you time to pause and consider if you really want to spend that money.
MISTAKE 5: Spontaneity is so appealing.
A lack of planning is one of the reasons millennials trip up when it comes to managing their money. It's all well and good to take a spontaneous holiday, but the price you'll pay for it in the form of interest rates or having to borrow money from loved ones will spoil the memories once you get back.
SOLUTION: Charles Sachs, a certified financial planner and accountant in Miami in the U.S. says to add a line in your budget for "big upcoming expenses" like holidays and keep it there for when you want to do something fun that may cost a lot.