At some point in every adult’s life, you’ll look back on the previous decade or two and think “what the heck was I thinking?” From poorly thought out career choices, bad relationships, and horrible money mistakes, we all make choices that affect our lives for years to come. And even though money mistakes can take a huge financial toll on your future, you can recover and avoid new ones.
Millennials are actually in a unique position in our financial lives. We’re old enough to have made a few money mistakes and young enough to make even more. That’s not a complete bummer because we also have enough time on our side to recoup from our past mistakes and can learn how to avoid more in the future.
The 10 biggest money mistakes, we’ve all been there…
1. Thinking that you have to keep up with your peers
Your social media feed is probably one of the best ways to see what your friends from high school are up to. On any given day you’ll probably see at least a couple of posts about the following things:
- Just financed a brand new car!!
- Amazing new iPhone, I love it!!!
- Epic vacation #blessed
- Look at the house we just bought <3
- Weekend in Vegas with my college bros
Those things are great if that’s what you want, and hopefully your friends aren’t financing their lifestyle to “afford” them. But when you are trying to get right with your finances, you need to ignore that noise and remember what you want out of your life.
The reality is that all of you are probably making more than you did back in high school or college, but you are the only one who gets to choose how you spend that money. Don’t fall for lifestyle inflation when you have a debt to pay off and retirement to save for.
Also, you can do all of those things your friends are doing, just make sure you put a line in your budget to make it all happen.
2. Not finding a side hustle when you need one
A side hustle is simply a work you do outside of your normal job. They are a way to diversify your income, increase your income so you can pay down debt or save for retirement, and they are also a way to maybe build a better job.
This cannot be stressed enough, you are making one of the biggest money mistakes if you aren’t finding a side hustle when you need to improve your financial situation. There are just too many good, easy to access side hustles out there.
But, my favorite is running Facebook ads for local businesses. It’s a side gig that you can do in just a 2-3 extra hours a week, and because Facebook will continue to be a place for local businesses to increase their visibility, there is going to be a need for more digital marketers well into the future.
Running Facebook ads is actually how I supplemented my income when I left my teaching job, and it took me just a few months before I was earning more a month than my salaried teaching position paid. To learn more about this side hustle and why it pays $1,000-$2,000 per month, check out the Facebook Side Hustle Course.
3. Using credit cards the wrong way
There are lots of people out there who are taking advantage of all of the possible rewards that credit cards have to offer – cash back bonuses, travel hacking, etc. This is possible when you always pay your bills on time, pay your balances in full, and keep your utilization rate low.
But, if you are using credit cards to finance unnecessary spending and aren’t paying your balances in full, then you are using credit cards the wrong way. To put things into perspective, Americans collectively owe more than $1 trillion in credit card debt.
Now, some of that debt comes from people who use credit cards as an emergency fund (more on that in a minute), but if your credit card debt is also unnecessary things that you don’t have the cash to back, that’s a huge money mistake.
Credit card debt can lead to falling behind on bigger goals like saving for retirement, more pressing ones like paying your bills on time, and it can damage your credit score.
4. Not saving for retirement
Here’s a hard truth, the systems in place that let our parents and grandparents retire at a normal retirement age are fading away for those of us in subsequent generations. Pensions are becoming a thing of the past. And Social Security? Ha!
It’s going to be mostly on us to save for retirement, and not doing that is one of the biggest money mistakes you can make.
Whether you’re behind on your retirement savings or not, there are ways to start investing even if you don’t have much money, including:
- Putting money into your 401(k), especially if there is an employer match
- Starting an IRA
- Real estate investing
- Even trying micro-investing as a first step
5. Not having a budget is one of the biggest money mistakes
Your budget is one of the best tools you have for creating a better financial present and future because it’s how you track the money you have coming in and going out. A budget can tell you when you need to increase your income, where you can cut your spending, and helps you find money to pay off your debt.
Fortunately, there are a ton of awesome budgeting apps (even free ones!) that make creating a budget easy to follow. My personal favorite is Personal Capital because it does more than let you see your weekly and monthly expenses, it shows you where you’re at for retirement.
6. Living with debt
Just this year, U.S. consumer debt hit a record high of $4 trillion. That’s credit cards, student loans, mortgages, doctor’s bills, car loans, etc. And, most Americans fall somewhere in that $4 trillion.
However normal debt has become, one of the biggest money mistakes you can make is thinking that you have to live with debt for the rest of your life.
Now don't get me wrong – I'm not saying you're an idiot for having debt. There was a time in my life when I had plenty of student loan debt (just under $40,000). I've been there.
The mistake happens when you tell yourself that you can't ever make a dent in it and give up altogether. If you want to get out of debt, it's possible. Easy? No. And it will be much harder for some people than others. But, I've been doing this long enough to see people in a thousand different situations take on their debt and win.
Debt may have helped you get through an emergency or graduate from college, but if you have a goal of becoming debt free, come to terms with your debt and create a plan to put it behind you.
7. Not having enough in emergency savings
Ideally, your emergency fund should be enough to cover 3-6 months worth of expenses. Depending on your situation, like if you’re self-employed, you may want to have even more set aside.
The reason not having an emergency fund is one of the biggest money mistakes is because it’s what protects you from some of these other money mistakes, like taking on more debt. You can use your emergency fund to help with car repairs, medical bills, times of unemployment, etc.
It’s there to protect you and your finances.
8. Not understanding the importance of your credit score
Let’s not argue about this – your credit score is important for a couple of reasons.
One, we don’t live in a cash-only society.
Two, most of us aren’t independently wealthy.
9. Thinking that new cars are the only way to go
Having a car note for a brand new car might seem like a rite of passage (see #1 as a reminder), but there are a ton of awesome used cars out there that won’t eat up your hard earned money. And, it’s really easy to get rid of your car payment.
Here’s the thing about cars: they are depreciating assets, so you are never going to make back your investment – that can sting even more when you’re financing a new one.
10. Not having a plan for your finances is a huge money mistake
You don’t have to know exactly what you want for the next 50 years of your life, but you should at least be thinking about what you want in the next 5-10 years.
That’s a nice time frame to think about because it might be the time you have left on your student loans, when you might be buying a house, starting a family, building a business, etc. Those are all big things that can take some long-term planning.
It takes knowing what you want out of your life to make a plan to get there. Here’s why:
- If you want to pay your student loans off quickly, you might need to find a way to increase your income with a side hustle.
- If you want to buy a house, you will need to find a way to save up for a downpayment and build up your credit score.
- If you want to have children, you will need to have an emergency fund, think about what maternity or paternity leave would look like, think about college savings, etc.
- If you want to start your own business, you will need to have an adequate amount saved as you make that jump.
My final word: Your money mistakes don’t have to dictate the rest of your life
No matter where you stand on this list of biggest money mistakes, you can avoid making more of them in the future. And, we’ve all made different choices that have impacted our financial lives in positive or negative ways.
For example, maybe you have never financed a car while neglecting to build your credit score. Someone else could have built their credit score up but have nothing saved for retirement.
All it takes are small steps in the right direction to become a better money manager, and it starts with not letting your past errors control what happens in your future. Start taking control of things today and your future self will thank you.