For many millennials, earning more doesn\u2019t always translate into feeling more financially secure. Raises, side hustles and bonuses may add income, yet debt balances often stay the same or even grow.<\/p>\n
Financial experts explain why the issue isn\u2019t always how much money is coming in, but often the result of one common mistake.<\/p>\n
Here’s how to avoid it.<\/p>\n
Face Forward: <\/b>Ignore These 6 Harmful Myths About Debt<\/b><\/a><\/p>\n Look Out! <\/b>5 Signs You\u2019re Losing Money Every Month \u2014 and How To Find the Leaks<\/b><\/a><\/p>\n The One Income Mistake<\/p>\n The biggest income mistake millennials are making, according to Chad Silver, founder and Managing Partner of Silver Tax Group<\/a>, \u201cis that all the raises, all the bonuses and all the side hustle money is caught in the lifestyle [creep] before it reaches the debt.\u201d<\/p>\n Silver said this is not an earning issue: \u201cI deal with clients with a large income scale and the trend is the same at all levels.\u201d<\/p>\n Side gigs might not even make a dent, according to Ashley F. Morgan, a debt and bankruptcy lawyer and owner at Ashley F. Morgan Law, PC<\/a>.<\/p>\n \u201cGig work can be a great way to supplement income, but you need to look at how much you are making and how much you are spending in expenses.\u201d<\/p>\n Someone driving for UberEats, for example, is also paying a ton in gas, so that income may not actually be free to pay down debt.<\/p>\n How This Mistake Quietly Adds Thousands in Interest<\/p>\n Lifestyle creep not only can keep millennials from saving<\/a> but compound debt costs dramatically.<\/p>\n Silver said that a person with a 22% credit card debt of $18,000 can easily owe over $43,000 on the debt over multiple years if they only make minimum payments.<\/p>\n Survival Spending Makes the Problem Harder To Spot<\/p>\n Even as millennials try to stay afloat, short-term financial decisions can reinforce the same cycle. Dr. Erika Rasure, chief financial wellness advisor at Beyond Finance<\/a>, shared study data showing that nearly 80% of millennials often fall into a behavior of \u201csurvival spending.\u201d It’s hard to build a foundation when you’re bailing out the pit.<\/p>\n Additionally, 77% use short-term strategies like Buy Now Pay Later for essentials and 71% say side hustles are necessary just to keep up.<\/p>\n Rasure called this a shift from \u201clong-term financial ideals to daily financial practices [that prioritize] what\u2019s immediately within their control.\u201d<\/p>\n Unfortunately, what\u2019s in their control is often to add more debt to their balances.<\/p>\n The Overlooked Factor: Not Knowing Where Your Money Is Going<\/p>\n Even if millennials\u2019 income rises, poor tracking or lack of budgeting<\/a> can reinforce the same mistake, according to Morgan.<\/p>\n \u201cIt is easy to estimate that you are spending only $600 per month on food, but when you go back and look \u2026 you could actually be spending $1,200 and not realizing it,\u201d she said.<\/p>\n She said that tracking spending can be \u201cempowering\u201d and ensure that you are \u201cintentionally spending.\u201d<\/p>\n The Simple Fix: Capture Income Before You Spend It<\/p>\n The solution is to act before spending<\/a> habits become ingrained. First, Silver said, capture any raises before spending it and put it toward debt just like any other bill, such as rent.<\/p>\n Morgan recommended that when income increases, \u201cideally you keep spending like you were earning your old income until you have taken control of your finances.\u201d<\/p>\n And of course, always pay off high-interest debt first, then save an emergency fund<\/a> to prevent new debt and start saving or increase saving for retirement, she said.<\/p>\n Automation Is the Easiest Way To Break the Cycle<\/p>\n Behavioral changes are hard, so the experts recommend automation to remove the decision-making.<\/p>\n \u201cAny increase in income should be sent to a separate bank account,\u201d Morgan said. \u201cAnything you can set to automate for finances, the easier it is.\u201d<\/p>\n