For many millennials, managing money can feel like walking a tightrope — balancing student loans, housing costs, inflation and the occasional splurge on life’s little joys.
But according to financial advisors, there are a few slip-ups that show up again and again, and they can make a big difference in long-term financial health.
GOBankingRates spoke with Scott Caufield, CFA, CPA, principal, registered investment advisor at Sophos Wealth Management, and Jimmy Fuentes, consultant with California Hard Money Lender, to discuss the most common money mistakes they say millennials are prone to — and how to avoid them.
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Mistake: Using Retirement Account as a Personal Bank
One of the biggest mistakes Caufield sees millennials make with their money is using their retirement accounts as a personal bank.
“While a 401(K) loan or an early withdrawal might seem like a reasonable temporary option to pay down debt or use as a down payment, these actions are usually a symptom of unsustainable spending,” he said.
He noted that utilizing retirement funds to subsidize spending you can’t truly afford is a huge mistake, as you’re giving up massive future tax-advantaged growth.
“Adding insult to injury, you may have to pay taxes on your withdrawal.”
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Solution: Get a True Handle on Your Spending
According to Caufield, millennials who find themselves tempted to tap their retirement funds should first get a true handle on their spending.
He said most people vastly underestimate how much they spend each month, so he recommended utilizing a free service that can help you track your monthly spending so you can start getting a good handle on your true numbers.
“As the saying goes, what gets measured gets managed!”
Mistake: Credit Paralysis
Another typical problem Fuentes sees is credit paralysis.
And with good reason: CBS News recently reported that credit scores are dropping rapidly. Simply put: Too many individuals put off action due to the assumption that a less-than-perfect credit score closes all doors.
“However, in the world of the private lender, I deal with investors daily who have a creative deal structure, good assets or income that can add value that is not reflected by a figure on a report,” Fuentes said.
Solution: Know Your Numbers
His recommendation? Know your numbers, ask more questions and do not compare speed and progress. Slow and steady wins the race, as they say, and taking the time to build your score up properly through smart financial management will pay off later.
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This article originally appeared on GOBankingRates.com: I’m a Financial Advisor: These Are the Worst Money Mistakes I See Millennials Make
