According to a recent survey, about two-thirds of millennial women across the country reported they were in poor or fair financial shape. That’s no surprise to Sallie Krawcheck, a successful Wall Street veteran and co-founder and CEO of Ellevest, a digital investing service geared towards women.
“Women keep the majority of their money in a bank, while men tend to invest the majority of their money in the stock market,” says Krawcheck, a former CEO of Merrill Lynch Wealth Management and Smith Barney. “And it costs women a fortune over the course of their lives.”
Still, says the 54-year-old New Yorker, millennials of all sexes are facing tougher financial circumstances than previous generations.
Their average student loan balance is double that of Gen-Xers at a similar age, she says. Meanwhile, the Federal Reserve found millennials’ average inflation-adjusted income is significantly lower than that of Gen-Xers and Baby Boomers when they were the same age. And then there’s the skyrocketing price of rentals and house prices in many areas of the country, putting home ownership out of reach for a large percentage of millennials.
“I think it’s super important for millennials to realize this is not your fault,” says Krawcheck. “You need to accept it is what it is, and don’t be defeated. There’s always something you can do today.”
That includes avoiding common mistakes when it comes to money: ringing up too much credit card debt, not saving regularly, putting off investing, and spending too much on a house.
Credit Card Debt
This is millennials’ biggest financial error, says Krawcheck: “It tends to be the most expensive kind of debt many people will have, and just sort of really bleeds away your net worth.”
When Krawcheck was younger, she made the mistake of making the minimum payment due each month, resulting in paying interest charge upon interest charge and seeing her credit card debt soar.
Solution? “Everybody can’t do this, but for those who can, pay off credit card debt in full,” says Krawcheck, “or work to be as disciplined as you can so that that if you can’t buy something without putting it on credit, really think about whether you truly need it.”
Not Putting Money in the Stock Market
Investing in the stock market has been one of the best ways to make your money grow, with an average return of 9½ percent a year historically, says Krawcheck. Yet the majority of women keep their money in bank accounts that yield almost nothing.
“That difference may not be so much when you are 25,” she says, “but when you are 72 that adds up to a lot.”
“Even investing small amounts in your 20s, it is worthwhile because it gives it that opportunity to grow,” she continues. “A dollar invested today is worth more than a dollar invested next year or 10 years from now, and a lot more in 20 years from now. You can earn returns on returns on returns.”
Krawcheck recommends seeking out a financial advisor, even if you feel like you know how to invest. After 30 years in the investing industry, Krawcheck still turns to her financial advisor for guidance.
“There’s not a one size fits all,” she says of investing strategies. At Ellevest, for example, “you’ll have a different investment portfolio for retirement than if you want to have a baby in five years or if you want to start a business in three years.”
Spending Too Much on a House
It’s easy to be lured into buying a house you can’t afford — such as putting down 5 percent cash and taking out a mortgage of 95 percent of the home’s price. This not only doesn’t allow you to build equity, but it can become an overwhelming financial burden.
Instead, says Krawcheck, shoot for placing a down payment of 20 percent of the cost of a more affordable house. “Any time there’s too much debt,” she says, “that can be a challenge regardless of how much the debt costs you.”
Putting Off Saving and Investing on a Regular Basis
The best financial advice Krawcheck received when she was younger was to invest early and invest a small bit out of every paycheck. “If you don’t do that, then your emotions get in the way,” she says. “We are very bad at timing the market. Even Warren Buffett, the most brilliant investor of our lifetime, did not try to time the market.”
Invest whatever you can afford, even if it is a dollar or 1 percent of each paycheck, says Krawcheck. “And just steadily invest it and forget you’re even doing it,” she says. “Then, over time, you could be very pleasantly surprised by what happened.”
Spending Too Much in One Area — and Not Enough in Others
Krawcheck shares goals for spending responsibly and saving, while she acknowledges these guideposts may be tough for someone who is just out of college or at a financially difficult point in life.
According to Krawcheck, 50 percent of take-home pay should go to needs such as rent, gas, food, the mortgage and other must-haves.
Then 20 percent should go to paying off debt — including credit cards and student loans — and investing in your future, such as into a 401K or IRA. “This should be going to shoring up your future self,” she says.
And then 30 percent (of take-home pay) “is living your life in a joyful way, going out with your friends, on vacation, buying a latte,” she says. “We’re only on this earth for a certain amount of time, and having the joy that money can bring you is important too.”