Generation Z consists of individuals born between the mid-1990s to the early 2010s. As this generation enters the workforce and becomes financially independent, they are making money mistakes that could have long-term consequences. These are 5 big money mistakes Gen Z is making:
1) Not Saving Enough
According to a recent survey conducted by GoBankingRates, 61% of Gen-Zers have less than $1,000 in savings. A lack of savings can make it challenging to deal with unexpected expenses such as medical bills or car repairs, not to mention saving for more significant purchases like a home.
To avoid this mistake, Gen-Zers should make it a priority to save money regularly, even if it is just a small amount. Ideally, 10% of your paycheck should go into your savings account, and 10% should go into your emergency fund. Once you’ve saved six months of living expenses in your emergency fund, that 10% should go right into your savings account.
To ensure you don’t spend this money, you should automate the 10% contributions and have no debit card attached.
2) Not Investing In Their Future
While retirement may seem far away, it is essential to start saving for it as early as possible. Learning about investing and putting money into stocks, mutual funds, or other investment vehicles that align with their goals is crucial. Gen-Zers should invest in a 401(k) or IRA to ensure they have enough money to retire comfortably.
An investment of $1,000 and a monthly contribution of $100, assuming a 10% return (the stock market’s average returns are approximately 10%), into an investment account yields $214,000 over 30 years, and $576,000 over 40 years. You can more than double your money between 30 and 40 years. This is why every year of investing is so important: The longer you invest, the more money you’re likely to make.
3) Overspending And Taking On Too Much Debt
This generation is known for needing instant gratification. They are not unwilling to suffer in the short term to obtain long-term financial satisfaction and security. They won’t forgo eating out and avocado toast, traveling, and buying the latest gadgets, which can lead to overspending on things they don’t need and accumulating debt.
And if Gen-Zers don’t have the money, they utilize “buy now, pay later” options, falsely believing they are making a good financial choice. But they don’t understand the ramifications of not paying “later,” which can negatively impact their credit score and their ability to obtain credit in the future.
To avoid this mistake, Gen-Zers should create a budget and stick to it. Many online budgeting tools make it easy to create a budget to avoid taking on unnecessary debt and ensure that you are only buying things you can afford.
Other tips include making it a practice to keep track of all your spending within a week. At the end of the week, review the list, determine the unnecessary items you bought, and exclude them going forward. You would be surprised how much money you’re spending on unnecessary purchases.
4) Not Getting A Side Hustle
With the rise of the gig economy and platforms such as Uber, Lyft, and Fiverr, there are many opportunities to make extra money. The average side hustle yields $483 per month and 15% of “side hustlers” make more than $1,500 per month. That is real money that can be used to pay off debt, save, and start an investment portfolio. By taking advantage of these opportunities, Gen-Zers can increase their income and achieve financial stability.
5) Jumping On New Money Trends On Social Media
These trends seem easy, but there is very little evidence they work, especially for the long run. While it is tempting to follow social media trends like “cash stuffing,” where one allocates cash to envelopes which signify buckets of allowable spending, there is no substitute for the tried-and-true methods stated above.
Why? Because financial responsibility is a lifestyle and is only obtainable through sound habits. These “trends” are like the juice cleanse that makes you lose 10 pounds, only for you to gain it back because you haven’t addressed the problem at the source: your eating and exercise habits. You have to change your mindset and the way you think about money rather than looking for quick gimmicks that fade over time.
Once you change your mindset, you will be on your way to a life of financial stability and abundance, for the long run.