6 Common Financial Mistakes Millennials Make

As millennials, we're often viewed as a generation of tech-savvy innovators who often get a bad rap for our financial missteps. While it’s true that millennials have made their fair share of money mistakes, the truth is that many of these mistakes can be avoided with a little knowledge and planning. 

Here are some of the most common financial mistakes that millennials make.

1.  Thinking That Moving Into a Higher Tax Bracket Is a Bad Thing

During the course of my career as a planner it has come up more than once "My friend turned down a promotion at work because it would bump them into a higher tax bracket".  Let me explain to you why this is a huge mistake…

In Canada we have a progressive tax system which in a nut shell means the more money you make, the more tax you pay.  The amount you will need to pay in taxes increases in stages according to what province you are filing your taxes.

In this scenario we assume John lives in Manitoba in 2022.

Example A)  John lives in Manitoba and earns a salary of $70,000/year.  His top Marginal tax rate is 33.25%.  John now has after tax income of $50,336.

Example B) John was promoted and now earns $80,000/year.  His top Marginal tax rate is now increased to 37.90%.  John still has $56,773 in after-tax income despite moving into a higher marginal tax rate. 

John ends up with $6,437 more in Scenario B.  This is why turning down that promotion may not be such a good idea.

Here is a good calculator to calculate your tax rates. 2022-2023 Manitoba Income Tax Calculator | TurboTax® Canada (intuit.ca)

2. Building Credit By Maxing Out Credit

Credit cards and personal lines of credit can help you establish credit, but they also have the potential to hurt it.  It is a common misconception that using your entire credit limit will improve your credit, but this actually has the opposite desired effect.  Equifax and TransUnion, Canada's top 2 credit bureau agencies, will actually penalize you for doing this. 

Paying your bills on time is one of the best things you can do to help build your credit score, and it accounts for ~35% of your total score.

3.  Not Automating Your Finances

Most millennials have income coming in on a monthly basis.  When funds are received, they are typically spent on miscellaneous expenses throughout the month.  Any leftovers may or may not be set aside for savings. 

Automation is your friend.  Pay yourself first.  Determine your savings goal and have it deducted automatically on the same day as your paycheck.

4.  Missing Out On Employer Matching Contributions

Employee matching programs, such as a Employee Stock Ownership Plan (ESOP), are popular among employers.  Some of these plans will match up to a certain percentage of your contributions.  This could be money left on the table so check to see if your employer offers this benefit or you could be missing out.

5.  Spending More Than You Make

Trying to keep up with the Joneses and living beyond your means can quickly lead to financial ruin.  If you use your credit cards and lines of credit, you will eventually need to repay the funds at a higher rate of interest. 

6.  Not Having an Emergency Fund

Life is full of unexpected surprises.  It is recommended that you save 3-6 months of your monthly expenses saved in your emergency fund.  Turning to credit or pulling funds from your investments can be detrimental to your overall financial plan.

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