7 Common Mistakes Millennials Make with Their Money (And How to Fix Them)

According to Wikipedia, you are considered a millennial if you were born from 1981 to 1996 – that is, in 2022, you are between the age of 26 and 40. This is generally the first generation who grew up in the internet age and therefore were the first to experience both the positive and negative impacts of the technological age.

Millennials are considered to face “middle-child” problems, as they lay smack between the pressure to work hard and succeed that they get from the preceding Generation X, and the hit-the-ground-running, ever-on-the-move Generation Z, leaving them to face a very unique set of challenges.

While the mistakes we will cover are not exclusive to millennials, they are more common among this group. As a millennial, you have a unique set of motivations, goals, circumstances, and challenges.

Here are a few common mistakes millennials make that tend to hold them back from financial success. 

1.    You don’t have clear goals for yourself

“If you don't know where you're going, any road will take you there.” – Lewis Carroll.

If you don’t set financial goals for yourself what is likely to happen is that as money comes in, you will spend it on whatever expenses present themselves and eventually find that all your money is gone and you can’t account for it.

By having a clear vision of what you would like to achieve, you will not only be able to plan out a practical path to getting there, but you will also be able to monitor your progress towards this vision, prioritize your spending accordingly, and get a boost of motivation every time you achieve one of your goals.

A quick tip: Make sure to write down all your short-term and long-term goals and ensure they are SMART goals – A goal that isn’t well articulated is likely to remain as just a dream. Dreams do not require focus or action. Turn your dreams into goals.

2.    Your portfolio is haphazard, not strategic

As a millennial, you are likely to be so “plugged in” that you are aware of every new investment vehicle and opportunity that cops up in the market. It, therefore, becomes very tempting to try your hand at a little of everything (after all, a diversified portfolio, right?) so as not to miss out on the next big thing.

However, this style of investment rarely leads to success. Often, as we jump into every new investment we hear of, we slack in our due diligence or end up investing in things we do not understand. The downsides to this haphazard way of investing are: Your investments may not end up aligning with your goals, you may end up losing money due to a lack of understanding or unscrupulous deals, by jumping in and out of investments may lead to losing out on compound interest (not to mention withdrawal and transaction fees) and you may be spreading your funds in too many directions to make any meaningful return.

What you need to do instead is strategically design your portfolio to align with your personal goals. Your investments need to match the timelines of your financial vision so that they are not just investments for investment's sake.

3.    When making career advancement decisions, you don't factor in all the benefits

A lot of us consider only one factor when deciding to change jobs – more pay. But several other factors may have longer-lasting effects on our financial wellbeing. Some of these are:

·        Retirement benefits – does the employer offer a pension plan? Does the employer make contributions on your behalf? What returns has their fund historically earned?

·        Health insurance – does the employer offer health cover? To what extent, partial or full? Will your family be included on the cover?

·        Career progression – other than the pay being great, is there room for career progression in this new job, or are you likely to stagnate? Does the job match your future life vision?

·        Other benefits such as education leave, education loans, stock options, annual bonuses, etc.

Understand the full compensation offered by the employer, not just the salary, so that you do not find that you’ve jumped out of the frying pan straight into the fire.

4.    You are not contributing the maximum to your retirement accounts

Pension plans are a great way for investing towards your retirement. They reap the full benefits of compound interest due to their long-term nature and additionally have tax benefits.

It is recommended that you systematically increase your pension contributions as your salary increases, and where possible, contribute the maximum allowable by your employer and law; especially if your employer matches your contributions.

5.    Your money is stretched too thin

Millennials often feel the pressure to take care of their parents and/or siblings, leaving them burdened under the weight of Black Tax (Read, How to Manage Black Tax). This leads to financial strain whereby your money is just not enough to cater for taking care of yourself, taking care of others and having a surplus for investing and saving.

It is important to set money boundaries such that you can plan how much assistance you can give while still being able to achieve your personal financial goals.

6.    You have way too much “bad" debt

Having grown up in the technological age, millennials (and Gen Z) have been fully exposed to the rise and ease of digital borrowing platforms. Never before has credit been so easily and discretely accessible. Without much effort, you can probably borrow 10% of your salary (or more) right now on your phone without anyone in your life being aware of it. 

This rise in credit accessibility coupled with the FOMO created by social media is a recipe for easily slipping into bad debt cycles. “Bad” debt is consumer debt – that is, debt towards depreciating assets or for lifestyle choices. While borrowing is not in itself bad, you should try to limit your borrowing to “good” debt – that is, debt towards appreciating assets or that self-improvement.

Most of these online quick-credit platforms are micro-lenders and therefore offer their loans at very high-interest rates. Wean yourself off of these facilities, and purpose to borrow intentionally and only towards your financial growth.

7.    You are not sufficiently prepared for the unexpected

They say that in this life nothing is certain except death and taxes. It is therefore prudent to be prepared for the unexpected. In some cases, you can insure against these unexpected events, in others you cannot. Whatever the case, you need to ensure you are adequately protected.

For the insurable risks, try and mitigate them as much as possible. This means having the appropriate insurance covers i.e., at least the following covers: medical insurance (for you and your family), Life insurance (if you have dependents), Motor insurance (if you own a car) and Domestic insurance (to cover your household items if you are renting property -Homeowners insurance if you own your home). Depending on your personal situation, you may require additional covers such as professional indemnity, personal liability etc.

For the non-insurable unexpected events (such as vehicle breakdown or loss of job), it is prudent to have funds set aside to cover these. The recommendation is to have at least 3-6 months of your monthly expenses set aside as an emergency fund whose sole purpose is to financially protect you against unexpected expenses.

An adequately funded emergency account can help keep you out of debt when something unexpected occurs. 

Whether you felt yourself nodding along to one or all seven, there’s always room for improvement. Purpose to work towards your financial fitness and begin your journey to the financial future of your dreams.

If you’d like to talk about the challenges you are facing with your money, you can book a free 30-minute ZOOM call with me HERE.

You can also check out the Thrive! 90-Day Financial Growth Program HERE if you are ready to propel your financial growth.