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 have heard many wild stories about money.
• Wild stories aside, though, there are four common mistakes I see millennials make with money, starting with holding too much cash instead of investing.
• Millennials also tend to ignore their company’s perks when they think they might not stay long at a job and maximize their budgets with large items, like homes.
• There are also some common misconceptions about credit scores and how they work that recur.
• Check out Vanguard Personal Advisor Services® to get the investment advice you need to help you build the life you want “

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

As the chief operations officer for a paid financial planning firm, I assure them that whatever they are doing, I have probably seen worse, or more dramatic, or more embarrassing; the point is that I heard a very of incredible money stories.

Our company focuses on helping professionals in their 20s, 30s and 40s use their money as a tool to live a great life right now, while still planning responsibly for tomorrow. Everyone we work with is really motivated to accomplish 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 also helping my friends with their money, I have seen some of the same mistakes repeated over and over. Here are some of the more common ones you will want to avoid.

1. Keep too much cash

There is nothing like cash for liquidity and safety. But you can he having too many good things.

When you keep your money in cash, it is quite safe and easy to access. You risk practically nothing, which is very different from the money you invest. All investments are subject to the risk of loss, which may lead you to wonder why you should bother investing.

It’s because you can’t earn a return without taking some degree of risk. And this is the disadvantage of cash: with minimal risk, it is basically not possible to invest that money to earn a return and realize More money.

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

The cash, on the other hand, practically stays there. And the longer it stays, the more likely it is to actually lose purchasing power due to inflation. If inflation rises, on average, about 2 to 3% per year but your money earns less than 1% sitting in the bank? Your dollars simply won’t go until 10, 15, or 20 years into the future.

You want to keep your emergency fund money in the bank where it is safe and easy to access. You will also need to keep your short-term savings in cash (this is money you plan to use over the next five years). If you have additional cash after accounting for such items, it might make sense to invest it rather than leave it lying around your bank.

2. Failing to understand how your credit score is really works

Myths about credit scores and what affects them abound. If you don’t clarify your facts about how your credit score works, your efforts to increase 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 looking for a loan. It’s fine to have a credit score of 800 or higher, but it doesn’t really do anything for you that a score of, say, 760 can’t do too.

Your FICO score, the main measure used by most lenders, is made up of various components, all weighted differently. Your payment history (regardless of whether you make payments on time and in full) and the amounts currently owed (debts and balances) matter most.

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

1. Make all payments for credit cards, loans and other debts on time and pay the full amount due. Don’t carry any balances unnecessarily, as this can drag your score down is it costs you money thanks to interest.
2. Keep your credit card credit usage at 30% or less at all times (i.e., don’t use more than 30% of your available credit at one time, if possible).

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

3. Ignore the benefits of your business

Changing jobs after a year or two isn’t as uncommon or frowned upon as it once was (and is expected or even encouraged in some industries). Because of this, you may not pay too much attention to the benefits your current business offers.

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

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

Even with a vesting program, your contributions are always yours, so it’s worth taking advantage of the benefit for as long as possible, whether it’s one or ten years.

4. Maximize your budget with large items

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

This might not seem like a big deal, especially if you do can he afford the purchase and happen to be on the higher end of the budget.

But the problem is that maximizing what you can spend right now leaves you no room for maneuver in your cash flow to add on other expenses, like having children, which is one of the main reasons people want to buy the maximum amount of home. for themselves in the first place!

Living within your means is good advice, but there is a difference between simply creaking and living well below your means. The latter ensures that you have leftover money to use for other important purchases and goals, such as investing to increase long-term wealth, raise your family, or just enjoy what life has to offer in addition to the larger mortgage payment you have. you can technically afford.