4 mistakes I see millennials make with their money

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• As the COO of a financial planning firm that works with millennials (and myself as a millennial), I’ve heard a lot of crazy stories about money.
• Wild stories aside, however, there are four common mistakes that I see millennials make with money, starting with keeping too much money instead of investing.
• Millennials also tend to ignore the perks of their business when they think they won’t be on the job for long and maximize their budget with big ticket items like houses.
• There are also common misconceptions about credit scores and how they work that come up over and over again.
• Visit Vanguard Personal Advisor Services® for the investment advice you need to help you build the life you want ”

When my friends come to me for financial advice, they sometimes tell me that they’re a little embarrassed to open up. They may feel like they’ve made a stupid mistake with their money, or they may feel like they should know better but don’t.

As the COO of a fee-only financial planning firm, I assure them that whatever happens, I have probably seen worse, or more dramatic, or more commendable; the point is that I heard a lot incredible money stories.

Our firm is focused on helping professionals in their 20s, 30s and 40s use their money as a tool to live a fantastic life right now while responsibly planning for tomorrow. Everyone we work with is truly motivated to achieve great things – but that doesn’t mean they don’t stumble on occasion.

After years in the financial industry focusing on working with people my age – and helping my own friends with their money too – I’ve seen some of the same mistakes happen over and over again. Here are some of the more common ones that you will want to avoid.

1. Keeping too much money in cash

There is nothing like cash for liquidity and security. But you can have too many good things.

When you keep the money in cash, it’s pretty safe and easy to access. You risk virtually nothing, which is very different from the money you invest. All investments are subject to the risk of loss – which might make you wonder why you should bother investing.

It’s because you can’t win come back without taking a certain degree of risk. And this is the downside of money: with very little risk, it is essentially impossible to put that money to profit to earn a return and earn. more silver.

Even modest returns on your investments (for example, an average 4% return on a very conservative, low-risk portfolio) will help you generate the money you need to achieve your goals, such as funding your eventual retirement.

Cash, on the other hand, pretty much stays there. And the longer he stays, the more likely he will lose his purchasing power due to inflation. What if inflation rises, on average, about 2-3% per year but your money is earning less than 1% sitting in the bank? Your dollars just won’t go that far in 10, 15, or 20 years.

You want to keep the money in your emergency fund in the bank where it is safe and easy to access. You’ll also want to keep your short-term savings in cash (that’s money you plan to use over the next five years). If you have extra cash after you book these items, it may be a good idea to invest it rather than leaving it lying around your bank.

2. Not understanding how your credit score is really works

Myths about credit scores and their repercussions abound. If you don’t have a clear understanding of how your credit score works, your efforts to raise your score could backfire or even cost you money.

Credit scores range from 300 (worst) to 850 (best) – but as long as you have a score of 740 or higher, you will likely qualify for the best rates a lender can offer when seeking financing. It’s okay to have a credit score of 800 or higher, but it really doesn’t do anything for you that a score of, say, 760 can’t do too.

Your FICO score – the primary metric used by most lenders – is made up of various items, all of which are weighted differently. Your payment history (if you make payments on time and in full) as well as the amounts you currently owe (your debts and balances) matter most.

For this reason, the most important things you can do to build and maintain a good credit rating are:

1. Make all of your payments for credit cards, loans, and other debt on time and pay the full amount owed. Don’t wear sales if you don’t need them, as this can lower your score and costs you money through interest.
2. Keep your credit usage on credit cards at 30% or less at all times (which means, if possible, don’t use more than 30% of your available credit at a time).

It is not necessary to take out loans for the sole purpose of increasing your score; Just managing a credit card well over time and avoiding consumer debt will give you the opportunity to establish and build good credit.

3. Ignore the benefits of your business

Changing jobs after a year or two is not as rare or frowned upon as it once was (and in some industries it is expected or even encouraged). For this reason, you might not pay too much attention to the benefits offered in your current business.

To some extent, that might be reasonable; Many employer-sponsored plans or benefits come with a vesting schedule that requires you to devote so many years of service before you have full access to the benefit.

But just because you assume you won’t be with the company in a year, doesn’t mean you’re guaranteed to move on. You don’t want to defer contributing to a pension plan because you think you’ll be going into a new business in six months, only to find yourself in the same place four years later with a zero 401 (k) balance you don’t. never bothered to start.

Even with a vesting schedule, your contributions are still yours, so it’s worth enjoying the benefit for as long as you can, whether it’s a year or 10.

4. Maximize your budget with big ticket items

The most common mistake I see millennials make is figuring out how many homes they can afford and then buying a home at the top of that range.

This may not sound like a big deal, especially if you can pay for the purchase and it sits right at the high end of your budget.

But the problem is maximizing what you can spend right now leaves you with no wiggle room in your cash flow to add other expenses, like having kids – which is a big reason people want to buy. the maximum house for themselves in the first place!

Living within your means is good advice, but there’s a difference between just cringing and living well below your means. The latter ensures that you have money left over to use for other important purchases and goals, like investing to increase your long-term wealth, enrich your family, or simply enjoy what life has to offer. beyond the biggest mortgage payment you can technically afford.