These Are the Most Common Financial Mistakes Young People Make
When it comes to your finances, do you take a head-on or head-in-the-sand approach? If you identify with the latter, the good news is you’re not alone. The bad news? You’re not alone. New data suggests that when it comes to managing money, women are not as independent as you’d expect. In fact, 91% of women in heterosexual couples are not participating in financial decisions. But we want to change that statistic. To help you become a master of your own finances, we’re debuting a series called The Paper Files, where we uncover tricks and tips that will help you manage your money and your future. Ready to take it head-on?
When it comes to personal finances, statistics show that millennials are about as clueless as Alicia Silverstone in, well, Clueless. But according to Alexa von Tobel, the founder and CEO of LearnVest, millennials should embrace learning about how to manage their portfolios. “If you’ve never been a runner, running can seem intimidating,” she told Vogue. “We’re just not exposed to personal finance. But once you learn the basics, it’s not that complicated.”
Like any problem in life, the first step to fixing it is identifying it. Speaking to Vogue, Von Tobel identified the five most common financial mistakes millennials make and talked about how to fix them.
One common financial mistake is the tendency to spend too much money on rent. It’s recommended that you spend 30% of your income on monthly rent, but a recent survey found that more than half of millennials spend more than that. Von Tobel suggests following the “50, 20, 30” rule, which entails allocating half of your funds to living necessities, 20% to savings, and 30% to leisure activities.
Another financial mistake made by millennials is not saving money for retirement. Starting to save money in your 20s is a surefire way to ensure that you’ll be financially comfortable when it finally does come time to retire. “If you begin to save soon, compounding interest isn’t magic, it’s math,” she says about the importance of putting money aside for your retirement while in your twenties. “From a behavioral psychology standpoint, seeing your saved money grow will inspire you to save more. It’s a really simple way to outsmart retirement.”
Finally, if you really want to get a handle on your personal finances, Von Tobel recommends starting an emergency savings account, which should contain up to six months of living costs in case of emergency. If and when you happen to experience something critical, like losing your job or needing a medical procedure, having a financial cushion will prevent you from taking another job just for a paycheck. “Your biggest asset as a young person is not a home or investments—it’s your ability to earn,” von Tobel says. “Make sure to have the right career path.”
For more financial advice, check out Alexa von Tobel’s book Financially Fearless, and let us know if you have any money management tips.