5 Mil­len­nial Money Mis­takes That Are Keep­ing Us From Our Dreams

ForbesWeekly - - NEWS - BY JULES SCHROEDER, FORBES CON­TRIB­U­TOR

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.”

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