Many millennial households are on their way to building substantial wealth. They are saving 20 percent or more of their paychecks, investing in 401(k) accounts and keeping their debt levels low. But others, even those with good educations and solid careers, are making financial mistakes.
And some are making them over and over, digging a hole from which it may take years to climb out.
Millennials can help themselves over the long term by avoiding several key errors. As a wealth advisor, and a millennial, here are the five most common money mistakes I’ve witnessed:
— 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.
— Postpone 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 towards your goals.
— 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.
— Buying a House Too Soon: Buying a home before you can handle the financial responsibilities can quickly strain a person or couple's finances. The goal is to buy a house that meets your needs and helps build equity, not the dream house you can afford during peak earning years. 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 pace. 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.
— 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. Even though it is probably the last thing you want to think about between sleepless nights and sippy cups, it needs to be done.
Tom Presley is a Wealth Advisor for Brightworth, an Atlanta-based wealth management firm.
