Millennials, those born between the early 1980s and late 1990s, have one big advantage when it comes to money: They have more time on their side than any generation of adults. But that also means they have more time to make big financial mistakes.
We often see headlines talking about the financial struggles of millennials: student loan debt, low-paying jobs, poor prospects for advancing their careers, and much more. Just avoid the following errors:
Millennial financial mistakes and how to overcome them.
1. Not understanding the time value of money.
The advantage millennials have is time. It is something that the older generations envy. Time is the greatest driver of wealth thanks to the power of compound interest. Millennials constantly forget about this fact and don’t take advantage of it.
Millennials should focus on saving every penny possible during their early years. $100 at age 22 will be worth as much as $9,305 in 40 years. Those sums of money are the ones that millennials are letting go for not saving on time.
Also read: 17 simple and intelligent ways to save more and more money.
The older generations simply don’t have 40 years to let their money “grow”. And with each passing decade, it is harder for wealth to appreciate at that rate.
2. Risk aversion.
Millennials are also known for their risk aversion. They grew up watching financial crises: One that hurt their parents during the “dotcom bubble” and many graduated from college during recessionary times. These two events are negatively influencing millennials: they fear investing in stocks.
Also read: Why I need to take risks right now (4 powerful reasons)
However, stocks as a whole are among the best asset classes for long-term growth. And millennials need to focus on the long term. They should invest a larger portion of their portfolios in stocks to take advantage of this over time. The extra time they have allows them to take on the extra risk that comes with the stock market. Failing to do this will leave many millennials with no earnings at retirement. Even though there is a long way to go, you must realize this now.
3. Ignoring the basic money equation.
The next major gap facing millennials is ignoring the frugality equation. When it comes to money, a simple equation is essential: Income – Expenses = Savings. Plenty of millennials (and every generation) focus on the “minimize expenses” part of the equation, but most overlook the “income” aspect of the equation.
Also read: Only in these two ways can you earn a lot of money.
Millennials have a unique advantage when it comes to potentially earning more money. They are generally healthier, more active, tech savvy, and understand the new internet economy. As such, millennials should do everything they can to maximize their income. Starting a business, taking side jobs to earn extra money and looking for investment opportunities. By increasing their income early on, millennials have the potential to save more over time and build wealth that goes into retirement.
4. Falling into the “millennial trap”.
But even with these pitfalls in mind, millennials and young adults shouldn’t fall into the “millennial trap.” This trap is the big lie that all millennials are doing it wrong. On the contrary, most are already addressing these issues and making great progress. Others are doing very well, maybe not at the level of Mark Zuckerberg, but doing well.
The real issue is that most media outlets favor reporting negative stories. Most millennial success stories aren’t magazine covers.
And remember, if you are really interested in creating your own business, you can read our book “How to create a company while working: Discover how to manage your time, manage your money and motivate yourself while creating a company and working for another” , where you will find all the information you need to found your own company, without having to leave your job.
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