By Asad Gourani, AAMS®, APMA®
As the Millennial generation continues to move further into adulthood, finances are beginning to take center stage in their lives. Couple that with the growth of financial technology, you now have people who can access the market easier than anyone ever has.
Despite easier access to the market, one of the main issues with finance today is it is not widely talked about or taught, leading many to make financial mistakes. This article will cover many of the financial mistakes people make, Millennials in particular, and how you can avoid them and position yourself for financial growth.
1. Not Having a Financial Plan
One of the most common mistakes made is when individuals go about personal finance without a game plan in place. How you can build a financial plan is to first lay out your goals, both short and long term. From there, begin building a budget that tells your money where to go to meet those goals. Then, you can begin laying the groundwork to achieve these goals and set yourself up for a healthy financial life.
2. Delaying Retirement Savings
Millennials have grown up in a world that is heavily driven by consumerism and instant gratification. The difficult part of saving for retirement is that the gratification comes later in life and it takes discipline to save. A common mistake being made is that Millennials are not saving for retirement early and taking advantage of compounding. Compounding earnings over a 30 or 40-year span can work wonders in preparing yourself for retirement.
A simple way to go about saving is passive investing, which is putting money into a fund or stock and simply letting appreciation and compounding work its magic over time. Even with the simple set-it-and-forget-it approach to this type of investing, it is important to review your portfolio on at least an annual basis to ensure that your financial objectives are being met.
3. Not Building Credit
Building credit is one data point that will save you stress when it comes time to borrow for a car or a home. A credit score is given to an individual as a metric representing how they handle debt. The higher the score the better as it typically results in lower interest rates, while the lower score represents a potential issue in handling debt, which may result in higher interest rates.
To build credit, you can either take out a loan or credit card and begin making on-time monthly payments. As you continue to handle debt well, your score will increase, thus showing creditors your ability to handle debt in a constructive manner.
4. Not Having Health Insurance
Millennials can make a costly mistake by not having health insurance. Obtaining the proper health insurance will not only spare a fine at the end of the year, but cover you should you come down with a simple cold or a more critical illness.
The mistake of not having health insurance could leave you with a large bill, as well as a lack of options when it comes to treatment. To prevent this from occurring, you can either obtain health insurance through an employer or through other marketplaces.
5. Financial Literacy
A final mistake the Millennial generation commonly makes is not engaging in financial discussions or becoming exposed to financial literacy. It can be said with a level of certainty that financial literacy is minimally taught in schools at best, leaving people unprepared for the real world.
To avoid this mistake, begin taking financial classes or read financial books. There are many different topics and subjects and by not learning about them you are leaving yourself open to financial troubles. Becoming educated in finance will go a long way in ensuring your financial health is in order.
Millennials have both the luxury and the misfortune of being alive in one of the most notable times in financial technology. Access to the markets is easier, but the education and knowledge surrounding these markets and processes has remained minimal.
Avoiding these common mistakes is simple, as long as you take the initiative and educate yourself. Don't wait too long as time is the biggest asset in financial matters.
Recent articles by Asad Gourani: The Benefits of Investing in a 401(k) Plan Now
This article was originally published on Investopedia.