Tips for Avoiding Financial Mistakes for Millennials
If you are in your early and feel you should prepare yourself for financial success while avoiding serious mistakes, what do you need to do?Here are some valuable tips.
Firstly, relax! You are in the best time to be enjoying life; and getting started on the road to a secure financial future is one of the wisest moves you can do. Go ahead and have some fun, discover exciting avenues and be open to potential ventures and adventures you can pursue for a lifetime. Do not become paralyzed with the fear of making mistakes or you will miss out on fruitful and gratifying opportunities. That would be counterproductive – learn to embrace mistakes as they can be stepping stones to learning and growing.
Nevertheless, some mistakes can cause disastrous and long-term financial effects compared to others, although they may seem harmless on the surface.
Go over these five financial missteps that can adversely undermine your financial life. Knowing how not to commit the same mistakes will greatly enhance your potential for building your personal wealth.
Mistake #1: Delaying on Your Savings Plan
This mistake tops all other mistakes in terms of keeping people from achieving a certain degree of financial stability. According to a survey, 39% of all respondents admitted regretting not having saved much earlier on while 63% claimed that saving early is the best advice they could offer to people.
Old people should know better than the young ones on this matter. Consider this: At 25, a millennial who tucks away 10% of her $30,000 income yearly will accumulate more than $620,000 at 65, based on a 2% annual raises and a 6% yearly rate of return on investments. If she postpones it for only five years, the nest egg goes down by about $140,000 and waiting 10 years reduces it by over $250,000.
You see how delaying on your plan to save can reduce your potential earnings in the future? Check out online apps that help you calculate how much you will accumulate if you start now.
However, there is a way to avoid this error. If your employer offers a 401(k) plan, contribute the minimum allowed amount to avail of full benefits of your employer matching funds.
Open a Roth IRA or Traditional IRA account at a mutual fund firm if your employer does not offer 401(k). Contribute to your fund using automatic transfers from your checking account every month.
While doing that, set up an emergency fund amounting to a minimum of 3 months' worth of living costs in a savings account, as a buffer in case you lose your job or for other emergency needs.
Remember, the important thing is to develop the habit of saving weekly or monthly and to continue doing it in your entire working life.
Mistake #2: Borrowing money you do not need
There are times when borrowing is essential, such as for a house, a car or for a college education to enhance your earning capacity. However, taking out a loan to sustain a kind of lifestyle above your pay level will cause big problems.
You have to realize that paying off a loan can greatly affect your budget. NerdWallet's latest yearly survey on consumer debt revealed that the regular household spends over $6,650 just for interest payments yearly.
Before you do take out a loan, answer these questions: Do you really need it? If so, can you live with a cheaper alternative? Finally, calculate if the monthly principal and interest you pay for so many years will yield for you a more beneficial alternative in terms of savings and investment accounts that can accumulate and serve to protect you from financial straits.
Mistake #3: Believing the Wall Street's byline “investing is complicated”
Investors often understand Wall Street companies to be saying that one needs to monitor the financial markets at all times, distribute your money over all kinds of complicated and cryptic assets and always be on your toes at any time in order to invest in new promising stocks. And the catch is that to make any substantial return, you must seek their help – obviously for a high price worth their “expert” advice.
Don’t you believe it! Even veterans in the market cannot accurately predict what the financial markets will end up doing. Terrance Odean, professor at the University of California Berkeley, conducted research which showed that outguessing the market by constant trading tends to reduce an investor’s chances to gain good returns.
The better alternative is by doing less: Create a basic portfolio of widely assorted stock and bond funds that suits your risk tolerance level and leave it as it is through market highs and lows, except for a rebalancing adjustment once in a while. Check out online tools which will help you do proper asset allocation consistent with your risk capacity in order to find a balanced mix of bonds and stocks that works for you.
Mistake #4: Paying too much for financial counsel
The annual fees you pay for a mutual fund manager or the occasional fees in exchange for advice in choosing potential funds and other financial counsel will affect whatever returns you expect from your investments by reducing your savings. Minimize such costs as much as possible.
In terms of investments, you can gain greatly reduced costs by sticking to low-cost ETFs and index funds. You can readily gain savings of at least 1% annually in relation to the regular stock mutual fund.
Go ahead and consult a financial adviser, if you feel you need to; however, be sure you get the precise amount you have to pay and the specific benefits you will receive, before giving out any money. Likewise, make sure the price is reasonable and comparable to fees charged by other advisers.
You may also hire an adviser on an hourly scheme rather than shelling out a specific percentage of your assets or using an online-adviser app or service utilizing algorithms that recommend affordable investing tips.
Mistake #5: Not monitoring your progress
One thing you should not do is to become money-obsessive. Neither should you be a Pollyanna and let things take their course, hoping everything will come up roses. Take time to regularly assess your financial status at least once-a-year to determine if you are on the right path.
The best overall measure of your financial health is through knowing your net worth, which is the value difference between your assets and liabilities, that is, how much you have and how much you owe.
For those who regularly save and invest wisely, their net worth should gradually increase. Once your net worth is static, you must increase your savings, invest more sensibly or reduce your indebtedness.
Calculate your net worth using simple online tools. A yearly estimate and comparison with the results of past years will easily show whether your net worth is increasing or not.
Likewise, make use of other free online tools which will help you evaluate your other financial aspects, including a check on how your present saving habit and investing pattern will create a stable retirement future for you.
It goes without saying that in order to increase your wealth-building potential, you need to cultivate your talents and abilities to a point where you can earn and save more during your professional life. And remember the value of having a solid defense against the five mistakes mentioned here. Doing so will significantly enhance your chances of reaching your financial goals and spending a secure future.
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