6 Financial Mistakes Millennials Should Avoid

The following column from Jennifer Pagliara, CapWealth Senior Advisor, appeared in The Tennessean on January 6, 2017.

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It’s a new year and I would guess some of your resolutions revolve around money. Well, that’s where I come in! Here are six tips on avoiding common mistakes made by those early in their adult lives and careers. I’m speaking directly to you, my fellow millennials, but much of this is good advice for any age.

Mistake #1: Getting a late start on saving

You’ve probably heard this many times, including in my columns. But like a lot of oft-repeated advice, such as look both ways before you cross the street, the risks and the rewards are clear. The power of compounding interest is mind-blowingly real — the earlier you start, the more mind-blowing. If you’re starting late, don’t panic. Just start now. If you think you’re too young or don’t have enough money, you’re wrong. Many mutual funds allow you to invest as little as $50.

Mistake #2: Taking on unnecessary debt

Newfound financial freedom can be intoxicating. As with other intoxicating things, it can get you into trouble. You have your first real paycheck and you suddenly want to buy everything. You need to be very careful about what types of debt you incur. Google my Tennessean column on good debt and bad debt.

Mistake #3: Failing to plan and monitor your progress

Time gets away from you. So can your finances. You need a plan, you need to monitor your progress and maybe need a professional to help. Millennials are going through huge life events: launching careers, getting married, buying houses, having children, etc. Paying for all of this while ensuring you’re setting aside enough and investing properly for long-term needs like kids’ education and retirement doesn’t magically happen. Success requires careful thought, discipline and some savvy. If you don’t have it, find a financial adviser that does and keep in touch.

Mistake #4: Leaving retirement money on the table

Odds are your employer offers some kind of retirement plan. Odds are, too, they offer a contribution match. One of the biggest mistakes you can make is not contributing enough to get it — one of the few things in life that’s truly free. For example, your employer may match up to 3 percent of your pay, but only if you’re contributing at least 3 percent. If you’re not getting the full match, do it.

Mistake #5: Utilizing after-tax options while still available

Generally, you’re in a lower tax bracket early in life than you will be later in life. Therefore, you need to avail yourself of investment tactics that allow you to pay lower taxes now versus higher taxes later — a Roth IRA, for example. You contribute after-tax dollars today (paying your current tax rate) and its growth is tax-free (meaning you don’t pay taxes when you take out the money at retirement). A Roth IRA limits income to under $115,000 if filing individually and $183,000 if filing jointly.

Mistake #6: Investing too conservatively

Volatility makes most investors uncomfortable. However, the best time to take risks is when you have the most time until retirement. If you’re in your 20s, you have 40 or more years to invest. That gives you time to make up market declines and unanticipated sub-par returns. I’m not suggesting you dump all your money into risky investments. I’m saying that though there are great years and awful years in the stock market, historically it’s persevered upward. You can’t reap your share of the returns if you’re not in it. Get conservative when you’re nearing retirement.

Again, if you need help avoiding the mistakes, talk to a financial adviser.

Jennifer Pagliara is a financial adviser with CapWealth Advisors. Her column appears every other week in The Tennessean.