You have worked hard all week, and it’s finally the weekend! You put on your new outfit, and of course, no outfit is complete without an iced caramel cloud macchiato from Starbucks. Then it’s time to meet the squad at the hottest brunch spot on Yelp. Three mimosas and an avocado toast later you head home. Another outfit change and a quick Uber ride , your squad is dancing the night away at the hippest dance club. No epic night can end without the traditional stop to Ihop. It’s 3 AM and you get the dreaded notification saying your bank account has been ‘Overdrawn’.
If you’re in your 20’s or 30’s, this might be a regular occurrence. If so, don’t feel bad. I certainly have had many weekends like this. Millennials are now the generation of outrageous student debt and perpetual spending habits. We work hard all week just to be broke by Monday. Here are the top 5 money mistakes I have made, and the lessons I learned to get myself out of this cycle.
Not having a budget. I had very little financial knowledge in my younger years. Then you start throwing in terms like “budgeting”, “expenses” and “investments”, it gets darn scary. First things first, you must come up with a budget. Don’t get freaked out because there’s a very simple equation to help: Income – Expenses = Profit.
Start by figuring out your income after taxes and subtract all the essential expenses you incur on a monthly basis. And by essentials, I mean all the necessities you must have to survive, not your “wants”. The rule of thumb to spending is to use the 50/30/20 budget ratio. Put away 50% of your paychecks for all the essentials like housing, utilities, groceries, insurance and loan payments. Leave 30% of your income for “wants”. Commit 20% of your income to savings and debt repayment.
Living the YOLO lifestyle and overspending. A recent survey says Millennials spend on average $838 a month on non-essentials such as vacations, dinning out and clothing just to keep up with what we see on social media. They are also reported to feeling stressed about money and least satisfied with their life progress. If we only get one life to live, why be stressed and in endless debt? Self-discipline is key. Avoid spending at the rate of our earning or worse “lifestyle inflation” – increasing our spending as our earnings go up. Don’t upgrade your car or go on that expensive vacation just because you got a bonus. Instead focus on the bigger picture and save that money for the future. And do yourself a favor, take breaks from social media every now and then. Trust me, you’ll feel a huge weight instantly lifted when you aren’t comparing yourself to others.
No Emergency Fund for a rainy day. “I barely have money to pay my bills this month, how am I supposed to save money?” I completely understand! I lived ‘paycheck to paycheck’, and it was not fun. Start small by setting aside $50 each paycheck and work your way up to 20% per paycheck. Unexpected emergencies will happen, make sure you’re prepared for it.
Getting into credit card debt. Upon leaving college, we start taking on debt. Most graduates have $30,000 or more in student loan debt. Add a car loan and saying “Just charge it to my card” becomes the easiest thing to do. With these crippling amounts already on your credit, don’t over abuse it by adding unaffordable luxuries. Make it a habit to pay off your credit amount each month. And come up with a plan to get out of debt, otherwise that interest rate will rear its ugly head and you’ll be stuck in bad credit land forever.
Not thinking ahead and planning for the future. “I don’t want to adult today.” There are countless memes dedicated to ‘not adulting’. Our generation is putting off marriage, starting a family and buying a house later compared to our parents due to fear of financial responsibility. Unlike Peter Pan, we have to grow up. Saving for the future is important. When we have money allocated to these future investments, we build confidence in ourselves and actually get to experience true financial freedom.
Money does make the world go ‘round but living within your means doesn’t mean you have to live a boring life. Make these money changes, and you will be living your best life.