Newsfeed
Forbes has a two-part series about 8 money mistakes that Millennials in their early 30’s make. These are mistakes financial advisors often see made by those who are in their early working years. So, if you are in your early 30’s and want to set yourself on a path to financial freedom, avoid these top financial mistakes:
Not making a commitment to financial independence
You have to commit to your financial success or you won’t fully embrace the sometimes difficult steps you need to take. It’s like losing weight–if you don’t commit and stop sneaking in junk food, you won’t lose weight. If you don’t commit and overspend, you won’t gain financial independence.
Not having a written financial plan
Without a written plan you won’t know where you are headed and how you will get there. How will you know how much to save each month or how to pay for that fun trip you really want to take? Our BankScoop series on Controlling Your Money will help.
Not setting up automatic investments
Invest automatically in 401(k) plans at work or have money taken out of every paycheck and automatically put in savings or investment accounts. If you don’t see it sitting there in your checking account, it’s easier to save and not think about spending it.
Overspending
People always seem to find a way to spend every pay increase they get. Don’t anticipate pay increases and overspend today thinking you will pay it off tomorrow. Don’t live above your means! Avoid credit card debt! If you can’t pay your credit card off in full every month, then you can’t afford to buy it.
Not maximizing a company match on a 401(k) plan
A matching contribution is FREE MONEY! Unless you are actively working to pay off debt as quickly as possibly, you should always “Max the match”. Save at least the full amount needed to get the company match every pay period. Like the article says:
Consider deferring in every pay period because many employers match to each paycheck’s salary deferral, not a total amount based on your annual contribution. By contributing in every pay period, you will benefit from the matching employer contributions in every pay period. So at the start of the year, target a deferral amount that you need to make each pay period through the end of the year in order to get the full match.
Do the math and “max the match” each paycheck over the whole year. If you have a hard time calculating how much to save each pay period to get the full match, your company’s 401(k) plan administrator can help you figure it out.
Missing out on the tax benefits of a Roth IRA
Any growth in a Roth IRA can be withdrawn tax-free when you are retirement age. And later in your career you may make too much money to be eligible for a Roth IRA. So save in a Roth IRA now, while you can.
It’s best to “Max the Match” on a 401(k), then save the max you are allowed by law in a Roth IRA, then if you still need to save more for retirement, go back to saving in the 401(k).
Lacking adequate disability insurance
When you are younger you think you are invincible and will never suffer a disability. But if it does happen it will be financially devastating. Your employer usually offers long-term disability insurance. But early in your career you are more likely to change jobs every 3-4 years and that insurance isn’t portable. If you can qualify, consider getting your own individual long-term disability policy. It usually offers better benefits and stays in force even when you change jobs.
Not protecting your children in the event of a death of a parent
Term life insurance is cheaper the younger you buy it, because you are usually healthier. Then you can lock those rates in for 15 to 20 years. Children should not have to grow up without adequate financial means or in poverty because of a death of a parent. You must have adequate life insurance to financially protect your children and your spouse from a loss of income.
And don’t overlook a stay-at-home parent having life insurance. It can hurt you financially if they are the primary caregiver and they pass away. Suddenly you will need to pay for daycare and all the other things that parent takes care of. That can also hurt you financially, though not as much as a loss of income from the primary breadwinner. Protect your children and get life insurance!
Create a long-term foundation of financial success when you are in your early 30’s by avoiding these mistakes.
For the full two-part series from Forbes, click here for Part 1 and here for Part 2.
