At this point, you might already be wondering what that one financial mistake millennials make that poses a serious threat to their future. There is no question that they are one of the most misunderstood generation. Some people refer to then as slackers while others would be quick to point out that they are the next generation of consumers.
With all the financial tips for millennials, one of the biggest mistakes they make has to do with planning for their retirement. This is one of those funds that you need to plan early for. The earlier, the better to allow compound interest to build up on your nest egg. Sadly, this is one concept millennial parents are taking for granted.
This is because according to a recent study by Personal Capital, a whopping 70% of millennial parents choose to prioritize their children’s college needs over their retirement fund. The same report also highlighted another cause for concern. When it comes to having a retirement account, 40% of millennials don’t even have one.
There is no doubt that this is one of the biggest financial mistake millennials make in their lifetime. That is not to say that they should not take care of their children’s needs. Millennials just need to keep in mind that they also have to take care of their future needs. It might not dawn on them that it could come out more expensive for children to take care of parents in the future. This will undermine all the efforts they put into sending them to school.
If you are one of those millennial parents who seems to be more focused on saving up for higher education rather than retirement, here are a few things to look into.
Have a budget
One of the best things millennial parents can make to stay on track is to have a budget they can follow. There are a number of components when it comes to doing this. For one, it does not have to be complicated to the point that they can’t understand it anymore.
It is ideal to keep is simple as possible at the start. The last thing you need is to be stressed out with your budget. According to NY Post, over 70% of millennials wake up in the middle of the night for various stressors including money matters. From that simple budget, you then start to add more components as you need. If you recently ventured into an investment then factor that in. When you get a raise in your pay, add that to your budget. The idea is to start with a basic one and improve as you go along.
This is one of the financial mistake millennials make because some believe that the more complicated it is, the better. Also, it is important to keep in mind that making a budget and following the same are two completely different things. It is tough to put together a budget but it is also equally challenging to stick to it.
Automate retirement savings
As most millennial parents believe that taking care of their children’s needs are paramount to their own retirement, automation could be the key. There is no doubt that retirement planning will allow young people to enjoy their golden years in retirement. This is one way to accomplish both without having to do much every month.
This is one of the tips to help parents stay away from that one financial mistake millennials make. As soon as their pay comes in, their contribution to their retirement fund whether for a 401(k) or an IRA is automatically deducted. It is already out of sight and out of mind before they get any ideas with the money.
What is left is an amount they are free to apply to their budget including their child’s future. As parents use this tactic, their retirement nest egg is slowly building up over time. The principal amount keeps on growing with the regular contribution to it. The interest also builds up with the compound interest doing its share. Choosing to forego automatic savings is one of the retirement regrets most people have at old age.
One tip to make this an effective strategy is to treat the contribution as if it was a debt payment. That way, the urge to dip into it in the future is lessened. Of course, this requires a certain level of commitment because, at the back of your mind, you know you have that money sitting there in your retirement fund. Just keep at it so you can steer clear of the biggest financial mistake millennials make.
Impart financial wisdom early to your kids
This is one great idea that a lot of people might often overlook. For one, they believe that the school system should be financially educating the children. It is also possible that some parents just do not have the time to sit down with their kids and talk about money management. However, parents need to realize that money lessons for kids starts at home.
That piggy bank routine will help them build up the habit of saving money for future use. When children are forced to find ways to earn money such as doing extra chores or helping out with other things, they are being trained to be resourceful. Including them in budget planning and letting them manage a small part of it exposes them to how it will be for them a few years down the road.
The better they understand how to manage finances, how interest rate works, and even how student loans can be a useful tool, the better. They will still look up to you for pieces of financial advice but you have to start pointing them to the right direction. Let them make mistakes early on so they get to learn and be more cautious with bigger amounts.
Failing to plan for lifestyle transition is another financial mistake millennials make
When you start to talk about retirement, a lot of people are often concerned about saving up for it. Maxing out the 401(k), opening up other IRA funds, and even venturing out to other investment tools that can complement their financial needs. However, not a lot of people talk about how the transition over to retirement should start years before they actually retire.
It is important to have the money to support you in retirement but it is also crucial to be prepared emotionally, mentally, and even socially. A few years before retirement, be sure to have an idea how you want to spend your golden years. Are you going to travel, pursue your hobbies or passion, or set up a business from home?
You might be too focused on the financial part of your retirement that you forget to plan for the activities you will pursue when you retire. It is also important to talk about this with your significant other because you might have different things you want to pursue. Meeting halfway or trying your hands on other activities can be explored.
Planning to fail for retirement is a financial mistake millennials make and it can cost them dearly in the long run. It is important to take note that your children can always borrow for their higher education but you can not take out a loan for your retirement needs.