Mistakes millennials often make with their money

Douglas Boneparth, co-author of “Millennial Money Fix,” shares the three biggest mistakes he sees millennials make that hold them back from financial success.

Too often young people don’t identify what they want to save for, or create a plan of action to get there.

Millennials also fail to master cash flow — which means budgeting and comparing your planned budget to what you actually spend.

They also tend to invest too soon, instead of saving up cash reserves.

The financial lives of millennials are complicated.

We live in a time where our personal finances are as complex as they have ever been. Unfortunately, it doesn’t look like things are going to be getting easier any time soon.

With the average millennial carrying approximately $35,000 in student loan debt, it’s no surprise that achieving the great things in life can be a struggle. To make matters worse, that vast majority of us were never taught basic skills in personal finance, which are an essential batch of knowledge required to succeed in this world.

Luckily, you don’t need to be a financial wiz to put yourself in a position to go after your goals. Here’s how to easily fix three common financial mistakes.

Problem 1: Lacking goals (and direction)

Without knowing where you’re going, how can you expect to get anywhere? I’d argue that you can’t.

Often, the biggest mistake I see millennials make is not having their goals in firmly place. And no, making “sick bank” is not a goal, “bro.” But you are going to need more than to simply identify your goals, which is why I created this system.

Obviously, the first step is indeed to figure out what it is you want for yourself. The most common goals are paying down student debt, building a cash reserve, buying a home and starting a family. However, it’s your life, and therefore only you can decide what you’re going after. Sometimes figuring “it” out isn’t easy, so give this the time it deserves. Just don’t take forever.

Now, once you’ve written down your goals, we need to quantify them by both time and value. For example, when do you want to buy that house and how much is it going to cost you? Do this exercise for each of the goals you’ve identified.

Lastly, we need to know which of your goals is most important to you by prioritizing them. Doing so will allow you to know exactly which goal is going to get your first and last dollar of savings.

Let’s be real, though. The money you have to allocate towards your goals is finite, so perhaps you’re going to need to delay some goals to ensure that the more important ones get accomplished. That’s okay! Remember to stay focused — it will allow you to spend more time improving your ability to earn more, which can lead to greater savings.

Problem 2: Failing to master cash flow

Mastering cash flow involves working with two sides of the same coin. The first side is budgeting.

I know, budgeting is not fun and I am not going to lie to you and say that it is. But like it or not, budgeting is a critical step to understanding where your money is going.

There are no shortcuts when it comes to putting a budget together. I don’t like fancy apps or tools because they are too often a shortcut and, believe me, shortcuts have no place when it comes to establishing the personal finance fundamentals. Any spreadsheet software will do, even pencil and paper if you want to be old school. Put your budget together category by category. Write what you hope to spend in each category.

The second side of the coin is reconciling cash flow.

This means going back to see what you actually spent in each spending category. This is where the learning happens because cash flow shows us the truth — and by accepting the truth, you can change your behaviors.

Masters of cash flow run this exercise regularly, and then they can see what their expenses are going to look like at least 3 months out! Now if that’s not control and discipline, I don’t know what is.

Problem 3: Investing without earning the right to do so

If cash management is the most boring part of personal finance, then investments have to be the most exciting. I call it the sizzle of personal finance: What could be more exciting than assuming risk in hopes of achieving a reward?

However, as exciting as investing can be, most millennials — especially younger ones — simply haven’t earned the right to invest. Except for receiving a matching contribution from your employer’s retirement plan (if they even offer one), there are many things you need to do before you invest your hard-earned dollars.

For starters, if you haven’t addressed the first two problems I’ve already discussed, you’re in no way ready to invest because you have no idea what you’re investing for!

Beyond that, most millennials have cash intensive short-term goals to handle before they can get to the longer-term goals that require investing.

I am talking about all those goals that you want to achieve in the next 0-4 years. This doesn’t even take into consideration establishing a healthy cash reserve, which is generally defined as 3-6 months of your living expenses in good old boring cash. It’s best to put on your blinders and tune out the noise. You’ll get there if you execute on what I am sharing with you here today.

I am positive that these fixes will get you heading in the right direction. The world of personal finance is vast, but the battle can be won by establishing a solid financial foundation. That’s why my wife and I wrote the ” The Millennial Money Fix.” We are no strangers to the financial challenges we face, and felt that everyone deserves to be financially literate. Oh, by the way, here’s an infographic reviewing what we just discussed, as well as a goals worksheet to help you implement your own goal system. You’re welcome!

Douglas A. Boneparth is NYC’s Financial Advisor for millennials. He’s the co-author of “The Millennial Money Fix” and the CFP Board Ambassador for New York.