5 Millennial Money Mistakes That Are Keeping Us From Our Dreams
If you ask the average millennial a basic question about their finances, they’ll go blank.
That’s what happened in one college senior’s finance class at Purdue University when the professor asked who knew what the Dow Jones was—only 25 of the 100 students raised their hands.
It’s no secret that the majority of
millennials miss the mark when it comes to financial literacy. Terms like “401(k)” and “ETF” sound like gibberish, at best ringing a vaguely familiar bell.
With millennials now at the age of financial independence, this is a big problem. The average 18- to 24-yearold has less than $1,000 in their savings account, and over $30,000 in student loans.
It’s no wonder that so many millennials experience anxiety about their finances, more so than baby boomers did at the same age. They’re more cautious about spending, and less able to make their dreams like owning a home and saving for retirement a reality.
Meet Rohan Thakkar, the senior in the finance class at Purdue University. Looking around at his classmates, he couldn’t believe that so few knew such a basic financial term. He realized there was a huge need to bring financial awareness to kids his age, and decided to do something about it.
That story was the inspiration for Thakkar’s company Orca Financial, a hub for straightforward, easy-to-digest financial education intended to bridge the disconnect between young people and finance. With article topics like “Emoji Finance Friday,” “How The Dow Jones Is Like Your Favorite Instagram Influencer,” and “Mutual Funds: As Explained Through Dating,” Thakkar is on a mission to break down financial concepts into a language millennials can understand. He’s also a writer for Thrive Global and AOL. This week on the Unconventional
Life Podcast, I picked Thakkar’s brain for financial “hacks” that anyone, no matter their financial literacy, can put into play immediately to save money and begin to make their financial goals a reality.
Make five of Thakkar’s financial fixes below to start seeing improvements in your financial life today.
1. You’re not using the 50-20-30 rule.
According to Thakkar, the “50-2030 Rule” stands for 50% spending, 20% saving, and 30% investing. It’s a guide to keep you on track to compounding your money over time.
With each paycheck you earn, commit to spending just half of it on living expenses like food, rent, bills, Netflix subscriptions, Uber rides, and nights out with friends. Set aside 30% of each paycheck to saving, until you have enough of a cushion to last you two to three months worth of pay “for a rainy day.” With the final 20%, consult a financial advisor about making entry-level investments that will help you raise money towards long-term goals like buying a house, starting a business, or attending grad school much quicker.
2. You’re not maxing out your 401(k).
Here’s the breakdown: a 401(k) is a retirement savings plan sponsored by your employer. According to a recent survey, 4 in 10 millennials don’t have a retirement income strategy in place.
Each year, you have the option to put a percentage of your income into your 401(k) savings account, and the money you put into that account is deducted from your taxable income. So if you make $50,000 a year and put aside $10,000 into your 401(k) account, your taxable income is only $40,000. Thakkar recommends maxing out your 401(k) by contributing the upper limit of $18,000 each year. “Why not pay less money in taxes? It’s more money you get to keep,” he says.
3. You’re not tracking your spending.
Do you ever feel like money seems to drain out of your bank account? Chances are you aren’t tracking your spending. 38% of Americans don’t track their spending, and more than half of Americans are living paycheck-to-paycheck.
When you track your spending, you can bring awareness to nasty habits that are draining your money, and replace them with wiser spending decisions. “Track your expenses,” Thakkar says. “It’s okay if you spend your money. I’m a firm believer about having fun. But we don’t have to be stupid about it. Think about it, if you want to go to Coachella next year, why not invest that money and have that money pay for your Coachella ticket?”
4. You’re not setting goals.
It helps to have concrete financial goals—in fact, writing them down can make you 42% more likely to achieve them. Rather than the abstract, “I’d like to have more money in my account,” define a concrete goal that you can work towards and measure your progress against. “Grab a pen and paper and set goals,” says Thakkar. “Goals like ‘I want to have $50,000 in my savings account’ or ‘I want to have $25,000 in the stock market by next year’ are great places to start. Start putting money aside, put $50 or $100 aside each month and let it grow. Have sixmonth, one-year, three-year, and fiveyear goals. Make financial goals and start saving towards them.”
5. You’re not investing for the long-term.
Nearly 80% of millennials are not investing in the stock market. 69% of those say it’s because they think it’s too confusing. In Thakkar’s article, “Mutual Funds: As Explained Through Dating,” he assures us that finding the right investments is no more complicated than finding the right qualities in a long-term romantic partner. “Put your money into a longer-term goal,” Thakkar says. “Work with an advisor who will advise you to put money into something that will grow in the next 5, 10, 25 years. Invest your income to make sure you are getting your income back. As the money comes in, take that money and reinvest it.”