Stop Making the One Income Mistake Keeping Millennials in Debt Longer
For many millennials, earning more doesn’t 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.
Financial experts explain why the issue isn’t always how much money is coming in, but often the result of one common mistake.
Here's how to avoid it.
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The One Income Mistake
The biggest income mistake millennials are making, according to Chad Silver, founder and Managing Partner of Silver Tax Group, “is that all the raises, all the bonuses and all the side hustle money is caught in the lifestyle [creep] before it reaches the debt.”
Silver said this is not an earning issue: “I deal with clients with a large income scale and the trend is the same at all levels.”
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.
“Gig 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.”
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.
How This Mistake Quietly Adds Thousands in Interest
Lifestyle creep not only can keep millennials from saving but compound debt costs dramatically.
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.
Survival Spending Makes the Problem Harder To Spot
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, shared study data showing that nearly 80% of millennials often fall into a behavior of “survival spending.” It's hard to build a foundation when you're bailing out the pit.
Additionally, 77% use short-term strategies like Buy Now Pay Later for essentials and 71% say side hustles are necessary just to keep up.
Rasure called this a shift from “long-term financial ideals to daily financial practices [that prioritize] what’s immediately within their control.”
Unfortunately, what’s in their control is often to add more debt to their balances.
The Overlooked Factor: Not Knowing Where Your Money Is Going
Even if millennials’ income rises, poor tracking or lack of budgeting can reinforce the same mistake, according to Morgan.
“It is easy to estimate that you are spending only $600 per month on food, but when you go back and look … you could actually be spending $1,200 and not realizing it,” she said.
She said that tracking spending can be “empowering” and ensure that you are “intentionally spending.”
The Simple Fix: Capture Income Before You Spend It
The solution is to act before spending 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.
Morgan recommended that when income increases, “ideally you keep spending like you were earning your old income until you have taken control of your finances.”
And of course, always pay off high-interest debt first, then save an emergency fund to prevent new debt and start saving or increase saving for retirement, she said.
Automation Is the Easiest Way To Break the Cycle
Behavioral changes are hard, so the experts recommend automation to remove the decision-making.
“Any increase in income should be sent to a separate bank account,” Morgan said. “Anything you can set to automate for finances, the easier it is.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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