Now that Generation Z, or the Zoomers, are now trickling into the workforce, it’s good to be aware of the financial mistakes your previous generations have made. Always approach your personal finances methodically. Learning from other people’s mistakes will most definitely benefit you in the long run. So, here are 8 money mistakes you should avoid:
Millennials
Not Sticking to a Budget
One of the biggest money mistakes is not sticking to your budget. May people scoff at the idea of planning a budget because it does feel like you are limiting yourself. Others may tend to spend frivolously on status symbols, or things that society dictates they should have. But in general, following a budget doesn’t necessarily mean limiting your spending. Budgeting can also refer to simply tracking where your money goes. This can then encourage you to make better decisions in terms of which purchases to prioritize and which ones to skip.
Start by listing down your expenses for a month, and rank them according to necessity. In the following month, try to stop yourself from spending on the least important items on that list. Here're some tips on budgeting.
Not Having an Emergency Fund
CNBC reports that a growing number of millennials have no savings, with 46% of younger millennials (ages 18 to 24) and 41% of older millennials (ages 25 to 34) having absolutely $0 saved in 2017. Ideally, you should have six months' worth of your salary set aside as your emergency fund to address unforeseen costs like medical expenses, home repairs, and losing your job.
You can start by opening a separate bank account from the one you use on a day-to-day basis. Then set a monthly savings goal, and make sure to deposit at least some of your earnings to this account — keeping in mind the budget mentioned earlier.
Not Having a Credit Record
Millennials are more debt-conscious than the previous generation, hence our general tendency to avoid credit cards. The Washington Examiner notes that 28% of millennials use debit cards instead for the majority of their purchases. But sticking to mainly debit transactions may not be a good idea in the long run. It’s still important to build a credit record, especially if you plan to make car and home purchases in the future. Your credit profile is what lenders refer to in order to evaluate your risk. Without any credit history, they will have no basis.
Make sure you have your own credit account, but use it responsibly. Make sure to keep your credit card balances low and make your payments on time. These steps will help you get a good credit score, which is what lenders are looking for.
Not Saving for Retirement
Younger generations tend to delay starting their retirement savings. After all, retirement might seem a long way off. Add the fact that they have student loans to think about, plus they may not be earning as much as their parents used to at their age. However, the sooner you invest, the greater your compound interest will be. This refers to the interest gained on the initial principal and on the accumulated interest of previous deposits. If you need help saving for retirement, check out these helpful tips.
Boomers
Failing to diversify investments
Failing to spread investments into more than one area means that if something happens to the one investment, no options remain. Boomers are notorious for investing everything in one pot. In the past, baby boomers often made their money by following the instantaneous profit or “quick buck” strategy. Today, however, boomers may find themselves cash-poor because the quick buck markets failed.
Underestimating their life expectancy
When you think of money mistakes, this is probably not what comes to mind. People are living longer today than they did in the past. Many boomers underestimate how long they will live and do not plan properly for their retirement. When calculating what age to begin collecting Social Security, a person’s overall health should help to determine when to begin the process.
If you are in good health and think you will live to be at least 80, you can benefit by waiting until age 65 to begin collecting Social Security. A plan of 10 to 15 years of retirement used to be recommended, but today experts recommend planning for 15-20 years or more of retirement.
Sacrificing retirement for their children
Many baby boomer parents are maxing out their home equity line of credit (HELOC) or, even worse, borrowing from their retirement accounts to pay for their children’s college educations. Retirement accounts should be left untouched until actual retirement, and used to plan for things such as the possibility of long-term medical care and funeral expenses.
Divorcing and remarrying
When you think of money mistakes, you most likely will not think about marriage. Baby boomers are accustomed to multiple remarriages, which include multiple divorces. Along with those divorces come property settlements; starting over means losing equity. The more equity you have, the more the divorce may cost.
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