PYMNTS.com recently released their Paycheck to Paycheck Report. Their research revealed that 70% of millennials live paycheck-to-paycheck. Worse, 60% of millennials earning over $100k also live paycheck to paycheck.
In my latest book, Effort-Less Wealth – Smart Money Habits at Every Stage of Your Life, I share a number of factors that cause Millennials to live paycheck to paycheck. Here’s a snapshot of some of that research.
- They Have Too Much Student Loan Debt – Many Millennials find out too late that their parents did not or could not save adequately for college. Rather than forgo going to their desired big-name college, they do what many of their friends/classmates do and fund their college costs by taking out student loans. That’s a Poor Money Habit. Those who do not have college savings should, instead, attend lower priced local community colleges for two years, while working as many hours as possible, and while saving as much money as possible. They should then use their savings to fund the final two years of a College that has a good track record of getting their graduates well-paying jobs.
- They Pay Too Much in Housing Costs – Many Millennials wind up renting their first apartments in areas where their friends live. These apartments are typically very expensive and consume 30% or more of their Net Pay. In my research for my book, Effort-Less Wealth, I noted that those who are able to save and build wealth, keep their housing costs to approximately 25% of Net Pay.
- They Lack Smart Money Habits and Have Poor Money Habits – Most Millennials were never taught by their parents or their school system how to save or how to prudently invest their savings. Due to this lack of parental guidance and deficient financial literacy training in schools, you see many Millennials investing in Crypto currencies or day-trading. Investing in Crypto currency and day trading is not investing – it’s speculation, which is a close cousin to gambling. In my book Effort-Less Wealth, I teach Millennials how to save and how to prudently invest their savings.
- They Lack a Clear Understanding of the High Cost of Auto Insurance – They are surprised by the high cost of Auto Insurance. They only realize how costly auto insurance is after leasing a new car. They don’t understand that auto insurance premiums are generally lower on used cars.
- They Have Too Much Credit Card Debt – Many Millennials rack up credit card debt early in their lives in order to fund their lifestyle, thinking their wages will increase as they get promoted and progress in their chosen careers. If you are using credit cards to fund your lifestyle, that’s a Poor Money Habit. Credit cards should only be used in emergencies. Too many get into the habit of using credit cards regularly and then struggle to pay off the balance every month. Because most credit cards charge very high interest rates, the unpaid principal accumulates interest, making it even more difficult to pay off your credit card debt.
- They Lease New Cars – Most Millennials were never taught the difference between leasing vs. purchasing a vehicle and they wind up leasing a new car because, in the short run, it is less costly. The truth is, leasing is more expensive in the long run than purchasing a car. Buying a low mileage, good quality used car, coming off a two-year or three-year lease, is a Smart Money Habit. Leasing a new vehicle is a Poor Money Habit, if you are not already rich. For Millennials who are not rich, you should purchase a quality used car and drive it until the wheels fall off. Expect to get seven years or more out of a good quality used car.
- They Are Birds of a Feather – Most people associate with other like-minded people. It’s simply part of our DNA to seek out others who are like us. If you have Poor Money Habits you will typically associate with individuals who also have Poor Money Habits. Since habits spread like a virus throughout your social networks, you will become infected by your friends’ Poor Money Habits. The solution is to seek out and associate with individuals who have the Smart Money Habits you would like to forge. Over time, their Smart Money Habits will infect you.
- They Give Into Want Spending – Human beings are hardwired to want what others have. It’s literally built into our genome, our DNA. Want Spenders spend more money than they make, on things they want. Oftentimes, they will go into debt in order to fund their Want Spending: 60 inch TVs, expensive vacations with friends, high-end cars, bigger homes or jewelry. Want Spenders also spend too much money at bars, restaurants and on entertainment. Want Spenders create their own poverty. They have been brainwashed by a consumerist society into buying things they do not need.
- They Engage in Emotionally-Driven Spending – When you allow emotions to influence your spending decisions, you can fall into the trap of Emotional Spending. The remedy is to delay emotionally-driven spending decisions for at least 24 hours. This allows the overly excited emotional center of your brain, the amygdala, to calm down and revert back to its natural, unexcited baseline.
- They Supersize Their Lives – Supersizing Your Life is a Poor Money Habit. It happens when you experience a sudden increase in income and immediately spend that bonus, raise, or inheritance on a bigger home, more expensive car, golf club/country club memberships, jewelry, expensive clothing or home renovations. The remedy? Same house, same spouse, same car. Refuse to upgrade your life when your income or wealth rises significantly. Have a plan and stick to it.