Guest Post By: Shiv Nanda
There’s a lot of talk about how Generation X and Y do things differently than Baby Boomers, but what does this really mean? Well, here’s the scoop:
– ‘Baby Boomers’ generally means people born between 1944 and 1964
– ‘Gen X’ refers to people who were born between 1965 and 1979
– ‘Gen Y’, or ‘Millennials’, are those born between 1980 and 1994
With Gen X and Gen Y now between 40-55 and 25-39 years of age respectively, they form the largest section of the population earning, investing and saving today. And just like everyone else, they’re doing some things right and others wrong.
What are Gen X and Gen Y Doing Wrong When it Comes to Money?
Here are 5 of the most common financial mistakes made by Gen X and Gen Y:
- Making Credit Card Debt a Priority – Don’t get us wrong, paying off your credit card should be a priority. But if your credit card debt is low, don’t make it a higher priority than saving for retirement. Compare interest charges on your credit card against earnings from retirement funds before deciding which one to prioritize. With high debt, interest could outweigh the returns from your retirement savings.
- Not Keeping Track of Credit Scores – If you aren’t paying attention to your credit score, you need to start doing it now. A good credit score is essential, especially when you’re applying for a personal loan, credit card or any other kind of loan in the future. It can affect everything from your credit limit or loan amount to interest rates you pay, as well as whether you’re approved at all!
- Relying on your retirement savings alone – With rising costs, traditional savings and assets will only get you so far after you retire, especially since Social Security isn’t much help these days. You need to invest also, so your money has a chance to keep pace with inflation. Most importantly, create a separate emergency fund to avoid dipping into retirement savings or investments when you need money unexpectedly.
- Withdrawing from Retirement Accounts – The worst thing you can do, other than not putting money into RRSPs, is taking it out. Early withdrawals and loans from retirement accounts carry heavy penalties and taxes, so this should be your last resort. You also lose the returns that these funds could earn over time. Instead, use a personal loan or personal line of credit to cover sudden expenses.
- Not Investing Correctly – Investing in the stock market can be a great way to help your money earn for you. But, it has to be done wisely. Consult a financial advisor or investment professional to learn how to diversify your portfolio and minimize your risk. It can be tempting to keep your money in a savings account rather than taking a risk, but this seriously restricts how much it can grow.
As long as you avoid these financial mistakes, you will be much closer to realizing your retirement goals!
Shiv Nanda is a financial analyst who currently lives in Bangalore (refusing to acknowledge the name change) and works with MoneyTap, India’s first app-based credit-line. Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, personal financial matters and when they want to get a loan. He has made it his life’s mission to help and educate people on various financial topics, so email him your questions at [email protected].