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I've helped more than 400 millennials fix their finances—and these are their 6 biggest money mistakes

Criene | Twenty20

The road to financial independence can be a struggle for many, especially for millennials. But it's not impossible if you gain the right knowledge and commit to making smart money decisions.

As a financial planner who has worked with more than 400 millennials, I've seen many of them fall into the trap of waiting around for the "right time" to start saving.

The "right time" is always as soon as possible. If you haven't started saving, it's time to identify your bad financial habits and fix them immediately.

Based on my experience, here are the six biggest money mistakes that young people make:

1. Letting credit card debt pile up

Using your credit card regularly and responsibly is one of the most effective ways to build — or rebuild — your credit. A good credit score can help determine whether you get approved for a mortgage, auto loan or even renting an apartment.

Unfortunately, the majority of millennials I work with struggle with paying off their credit card debt. According to a recent poll from CreditCards.com, about one in four (23%) of millennials say they've been carrying a balance on their credit cards for at least a year.

There are two important rules when it comes to using credit cards: Don't rely on it to pay for life's necessities and don't overspend on things you don't need.

If you're a new graduate who is just entering the workforce, try to put as much money as you can into your bank account during the first six months of your career. This will give you a head start in building your savings, making it easier to zero out your credit card balances every month.

2. Not having a rainy day fund *and* an emergency fund

Every time I do a financial literacy workshop for undergraduates, I ask them what their biggest goals are after they graduate from college. Buying a home is usually the most popular. But building a rainy day fund and emergency fund? Nope.

I've seen many people make the mistake of saving for just one fund — or none at all. As a result, they end up in debt or having to pull from their other savings accounts.

First, it's important to understand that these are two entirely different things. An emergency fund is your safety net in case you run into financial emergencies such as a job loss, illness or injury. A rainy day fund is intended for smaller, more predictable expenses such as a sink repair or trip to the mechanic.

Typically, an emergency fund should provide a three- to six-month cushion of living expenses. To calculate how much you need for your rainy day fund, get a handle on your potential future expenses such as utilities, groceries and insurance.

3. Spending at the rate of their earnings

When you're young, living in the moment sounds a lot more appealing than planning for the future. But you'll never reach financial freedom if you keep falling into the trap of "lifestyle inflation" — or increasing your spending as your earnings go up.

That means: Don't upgrade to a bigger apartment just because you got a raise. Don't plan for an expensive vacation just because you got a bonus. Instead, focus on the bigger picture and save that money or use it to pay off any existing debt.

With just some minor belt-tightening, you can grow your money and spend it on more important goals such as buying a house, early retirement, protecting your family or even having the wedding of your dreams.

4. Not being proactive about their health

As Warren Buffett once said, "You have only one mind and one body for the rest of your life. If you aren't taking care of them when you're young, it's like leaving that car out in hailstorms and letting rust eat away at it."

And guess what? Getting rid of all that rust is going to be very expensive.

While it may sound like a drag, being proactive about your health will help you live longer and prevent high health care costs in the future.

Start by maintaining a healthy diet and exercising often. Take advantage of your employee health benefits by getting routine health screenings. These tests can help you identify potential issues early before they turn into something serious.

5. Not investing in the stock market

According to a 2018 Gallup poll, only 37% of young Americans (ages 35 and under) said they owned stocks between 2017 and 2018, compared to the 61% of people over the age of 35 did own stocks.

Sure, there are many risks that come with opening an investment account; you can't control exactly what the market does or the rate of return you can earn.

What you can control, however, is how much you save, what percentage of income you put into long-term investments and how you invest those funds.

Investing in the stock market is one of the fastest ways to grow your wealth. If you're clueless about how to invest, consider working with a financial advisor.

6. Not saving for retirement

Waiting to long to begin saving for retirement is a huge mistake that will come back to haunt you in the future.

According to a 2018 report from E-Trade, more than a third of millennials make withdrawals from their 401(k) plans — to pay for a big purchase, vacation or other personal expense.

The general rule is to put at least 15% of your pre-tax income each year into a savings account. Many employers offer to match their employee's contributions — up to a certain percentage — to a company retirement fund such as a 401(k) plan.

One common excuse I hear from millennials is: "But I don't make that much money." If that's the case, work on restructuring your lifestyle so you can live on less than you make. Even setting aside just $20 a month can make a difference.

Bryan M. Kuderna, CFP®, RICP®, LUTCF is the host of "The Kuderna Podcast," author of "Millennial Millionaire" and founder of Kuderna Financial Team, a New Jersey-based financial services firm.

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