When it comes to finances, many Gen Zers are just getting their feet wet — often unaware of the numerous financial pitfalls lurking ahead. And while they may feel secure in the fact that they have their whole life ahead of them, it’s important to realize it’s never too early to start making smart financial decisions.
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Gen Xers, on the other hand, are older, in their 40s and 50s, with plenty of life experience — and their own share of money mistakes. Fortunately, it’s possible to learn from the past mistakes of others and pave a brighter future for yourself.
On that note, here are some of Generation X’s biggest money mistakes to avoid.
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Taking on Too Much Credit Card Debt
Credit cards aren’t evil. Instead, they are a financial tool that can help you build credit — as long as you use them wisely.
“Credit card companies make initial access to credit easy,” said Adam Scherer, CFP®, MS, EA, founder and lead financial planner of Greenbeat Financial, a fee-only virtual financial planning firm. “There are often free giveaways or incentives to enroll. However, the interest rates applied to balances that are carried forward are astronomically high. Incurring credit card debt can create significant financial stress and has the potential to adversely impact your credit score. If you opt to open a credit line, establish a habit of paying down your balance as quickly as possible. Starting your professional career with the weight of debt on your shoulders makes the climb toward your future feel exhausting.”
Falling Victim to FOMO
This is how Matt Ruttenberg, the founder of SureLI, an online term life insurance site for the FIRE community, described his biggest money mistake: “Leasing nice cars, buying toys and gadgets that our friends have purchased, and going out to restaurants too much because of the fear of FOMO (fear of missing out). This took money directly out of our pockets and into paying high-interest credit card payments. These habits stalled our journey to reach financial independence and cost us tens of thousands of dollars, minimum.”
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Not Saving for a Rainy Day
Not saving for unforeseen expenses can wreak havoc on your budget, so it’s important to get started now. Many experts recommend setting aside three to six months’ worth of living expenses. Even if that seems overwhelming, stashing away a little at a time is better than doing nothing at all.
“When you first start earning money, money will be tight,” said Trae Bodge, a retail and money-saving expert. “Despite that, try to save even a little bit so you can take advantage of compound interest. I would suggest setting up automatic withdrawals through your bank or a financial platform like Acorns. Acorns also has a ’round-up’ feature that invests your ‘spare change’ for you every time you use your debit card — an easy and painless way to save. It’s something that wasn’t available when I was younger, but I’m making up for lost time now!”
Spending More Just Because You’re Making More
Otherwise known as lifestyle creep, spending more as your salary increases can put you on a slippery slope when it comes to your finances.
“I definitely made some money mistakes earlier on in life,” said Michael Benson, bankruptcy attorney, certified public accountant, licensed investor and owner of A Bankruptcy Law Firm. “Some were more costly than others. When I started making good money as a CPA, I was inclined to spend it and treat myself. I bought a very nice house in a gated community with access to a golf course right from our backyard. I still live in the house today and it’s a great house, but it was much larger than we actually needed. It’s a bit painful to reflect on how much money I would have if I didn’t opt for the bigger house with the bigger mortgage. When it comes to things like homes and cars, I would definitely recommend only buying what you truly need. You’ll save a lot of money that way and your future self will thank you.”
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Not Investing Early in Life
“There are three money lessons I want all Gen Z members to understand, all related,” said Brian Davis, real estate investor and founder of Spark Rental. “First, wealth comes from your savings rate: the percentage of your income that you save and invest. It doesn’t matter if you earn a million dollars a year if you spend all million of it. You build wealth by growing the gap between what you earn and what you spend.
“Second, you can reach financial independence and retire at any age. It simply requires enough passive income from investments to cover your living expenses. Once again, the lower your living expenses, the easier that is to achieve, and the faster you can invest money for passive income.
“Third, compounding can do much of the heavy lifting for you, if you get started young. At a modest 8% return, it only takes $287 invested each month to reach a million dollars in 40 years. But to get to a million dollars in 10 years takes a whopping $5,467 per month.
“In other words, start investing now. Boost your savings rate, invest more money and start building wealth and passive income. I got serious about investing to retire young three years ago. I’m on track to retire in two or three years from now. But that’s because my wife and I save and invest 60% of our household income.”
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Last updated: Sept. 28, 2021
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