Four Common and Costly Money Mistakes That Millennials Make

• Author: Chris Remington
• Posted: 2024-05-24

Unfortunately, it seems like millennials cannot catch a break these days. The same generation that was set back by the Great Recession is now taking a hit from the COVID-19 crisis. This has kept them from not only saving for retirement, but also from staying out of debt. There are numerous mistakes that millennials make that worsen their own financial situations. By eliminating these common errors, they can at least put themselves on more solid financial footing when some normalcy returns to the economy. Here are some critical millennial financial errors.

Paying Off Too Much Debt

Hear us out carefully here. While we always preach extensively about paying off debt and staying out of the red, there is some debt that is worse than others. Focusing too much on paying off debt can keep someone from saving for retirement until they are well past 40 years old. This means that someone will miss up to 15 years or more of stock market gains in their retirement account. We are not saying to avoid getting ahead on debt payments altogether. Instead, we are simply advocating that millennials divide their focus between debt and saving. The common misconception is that the two have to be mutually exclusive. Focus on paying off your debt with the highest interest rates while putting some money away each month for retirement. You do not want to be left with little in savings or investments when you may need the money.

Avoiding Life Insurance

Millennials may not be focusing on their own mortality because they are young. However, there is another common misconception that makes insurance and death completely coextensive. That is not always the case. First, even if millennials are not married with a family, they may still have loved ones who they want to take care of if they are gone. Private student loan lenders may still be able to make a claim against assets if a millennial dies with student loans. Second, there are life insurance options beyond term policies. There are options such as whole life insurance that actually allow the policyholder to build wealth for the long term with their policy. In other words, the death benefit is only one feature of this particular policy, and it can be used to help a millennial begin investing for the long term.

Not Putting Away in the 401(k)

We mentioned above that it is never too early to start saving for retirement. The preferred way to do this as a millennial is through the employer's 401(k) program. Not only are there tax benefits that go along with this, but many employers will also give you a matching contribution. We cannot say strongly enough that this is free money. If you do not contribute to your 401(k) under these circumstances, you are giving away money. There are many tales of average middle-income workers who retire as 401(k) millionaires. Simply take advantage of your employers maximum matching amount and do it every month until your retire. One day, you will be shocked to learn how much is in your account.

Trying to Hit the Home Run in the Markets

These days, many people think that they are stock gurus who have the secret to financial success. However, many of them end up financially devastated because their sure-thing investment went up in smoke. Your investment strategy should focus on hitting the proverbial singles and doubles rather than swinging for the fences. The truth is that even more experienced investors rarely have what it takes to "Beat The Street." Certainly, inexperienced investors would be more vulnerable to large losses when they take risks on their investments. If you must speculate, put away a very small part of your liquid assets to do so. Concentrating the bulk of your liquid assets in risky bets is the same as going to the casino. The house has the edge and in individual investor will likely lose.

Try to pick a reasonable rate of return on your investments and go from there. Drop the fantasy of doubling your money with one stock trade and shoot the get 8-9% every year. You will find that every dollar invested can compound mightily over time with this rate of return. While there is no surefire way to becoming wealthy through your investing, you should at least operate under a "do no harm" way of thinking.