Guiding your life’s biggest financial moments

Personal Finance

7 things not to do for every millennium

Kiplinger logo

How time flies. Older millennials turn 40 this year, a milestone for many reasons, including financial planning.

Despite the Great Recession and the COVID-19 pandemic, many millennials are making solid progress in their finances. Bank of America’s recent Millennial Report shows that 73% of millennials are actively saving and one in four has accumulated more than $ 100,000. On the other hand, the survey found that 27% don’t save at all. And more than three-quarters are burdened with debt, with one in six millennials owing $ 50,000 or more, excluding home loans.

Whether you’re on the right track or need help getting started, it’s good to have a plan in place. Here are seven things to stop doing in order for our millennials to move in the right direction:

Don’t let GameStop-style stocks, cryptocurrencies, Reddit, and other get-rich-quick stocks run your investment portfolio. While you can be lucky and buy a stock at the right time, it is just as likely that you will make a costly mistake and lose money instead of getting rich quick.

The way to build lasting wealth is to save early and often and invest wisely in a well-diversified portfolio. Understand your investments or work with someone who understands investments.

We had a client who came to us after losing some of his savings to speculative investments. We recommended that they set up a very small sandbox account where they could continue to pick stocks on their own and leave their long term money alone to a more disciplined approach.

It is important to keep a reserve of money in the bank in case of an emergency. You never know when you might end up with no income or need quick cash. Don’t worry about how little interest your money is earning right now; liquidity is the most important characteristic.

We met someone who was using a 20% interest credit card as an emergency fund. We quickly advised them to change this tactic as it went against their financial plan. Instead, we recommend that you have at least three to six months of living expenses set aside in cash for unscheduled car repairs or other surprise expenses.

Save the maximum amount in one 401 (k) or another similar pension plan is a good start, but try to do more. For example, open a traditional individual retirement account (IRA), Roth IRA, or brokerage account. The first two will complement a retirement savings account, while a brokerage account offers flexibility if funds are needed before the age of 59 and a half. Many millennials hope to retire before they reach that age and will need a source of money to pay for their living expenses.

Many people who work for a publicly traded company own a significant amount of company stock. Many companies promote this practice and may even provide 100% of the corresponding 401 (k) funds in company stock.

However, be careful not to overweight a single stock in your investments. While you may feel inspired to help your business grow when you are “all-in,” remember that your salary and benefits already depend on the performance of the business. Not all of your nest egg should be invested in this business either. Instead, our general advice is not to invest more than 10-15% of a person’s investment portfolio in a single company, including their own employer.

A few years ago, we had a prospect who had invested almost 100% in his company’s stock for over 30 years in his 401 (k), and the stock had not performed well. It was sad because their 401 (k) could have been worth more than eight times its current value if they had diversified.

One of the most notable changes for older millennials is that the sense of invincibility begins to fade. But many young people and families have postponed some crucial decisions due to the uncomfortable nature of the matter. However, life is unexpected, and worst-case scenario planning is especially important because only you can do it – and you have to do it before you need to.

Work with an estate planning lawyer to set up a will, powers of attorney, and healthcare guidelines. This will make future decisions much easier if you become incapacitated or die. Next, work with an independent insurance broker to make sure you have adequate life and disability insurance coverage to support your family.

Most millennials are exposed 24/7 to their friends’ every move through social media, including their perceived wealth. The fastest way to lose (or avoid having) your wealth is to spend it all trying to keep up with your friends. If you’ve spent beyond your income level into your 20s and 30s, now is the time to break the habit.

The # 1 key to long-term financial success is spending less than what you earn. If you do this long enough and wisely save the difference, you will give yourself more options and flexibility in the future. We have had many successful clients with the out of sight, out of mind method. They pay themselves first into their savings accounts, 401 (k), and spend only what is left.

A number of clients have come to us wishing they had made their plan earlier. They had so many regrets that they hadn’t gotten together in their thirties or forties. Learn from their mistakes.

Stop thinking you have more time. Take a small but deliberate step today towards a better financial future. Putting even a tiny bit aside every paycheque will work. For the long term, start setting priorities. If owning a home is a priority, start researching the amount you need for a down payment and make a plan to save that amount.

Just like your family or your career, it takes time and energy to develop and implement a financial plan. Take the time now to get started or reassess the strategy you have in place. It’s hard to believe, but 50 isn’t that far away, so planning for your financial security needs to start now.

You may also like...

Leave a Reply