2 Things Gen Zers Do When Luxuries Start Feeling Like Bills
Overall, Gen Z is doing pretty good with money. They’re goal-oriented, proactive and determined to have a life that is wealthy in both dollars and worth. But like every other generation before them, they’re not perfect and they often fall into traps that hurt them in the long run.
One common habit is treating luxury expenses like monthly essentials, potentially creating a spiral of overspending and undersaving.
Read More: 4 Things Gen Z Gets Right About Money That Boomers Often Got Wrong
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“In terms of major financial errors, the top one I see among Gen Z individuals is their ability to convert flexible, discretionary spending into fixed monthly obligations,” said Cody Schuiteboer, president and CEO of Best Interest Financial. “The more ‘essentials’ you add to a young adult's life, the more those expenses show up in numbers that determine whether they'll be able to purchase a home, and what kind of house they can afford.”
Let’s dig into some money mistakes Gen Z makes when luxuries start feeling like bills.
They Don’t Add Up How Much These Luxuries Cost Annually
Are you tallying up how much your splurges cost you every year? Probably not – because if you did, you’d likely be appalled.
“You'd never sign for a loan worth $7,200, yet you happily sign for $600 per month in recurring expenses without ever adding it up,” Schuiteboer said.
They're Needlessly Upgrading Instead of Investing
A lot of luxury spending goes toward totally unnecessary upgrades that don’t really improve your life and only set you back in the long run.
“Money spent on upgrades is not compounding,” Schuiteboer said.
These Mistakes Are Really Easy To Make in Our ‘Add to Cart’ World
Why routinely spend thousands of dollars a year on what are ultimately trivial things when you could be putting that money in a vehicle where it will generate more money? It’s not because you’re not smart or because you’re irresponsible. It could be because you’ve never not known a world without the internet, where spending money is so heatedly encouraged and so incredibly easy to do.
“The reason why Gen Z makes these decisions isn't a matter of flawed character, nor will I judge the framing,” Schuiteboer said. “They've grown up in an environment where the premium version is selected by default and spending requires minimal effort. When the upgraded version is just a click away, and the cost is broken down into a monthly fee, the brain stops seeing it as a discretionary splurge and starts considering it a mandatory expense.”
Reset Your Thinking – and Your Budget — To Break the Cycle
Pay attention to the psychology underneath your approach to luxury spending and make a mindful effort to change it.
“As for reframing, the best thing I do for someone's financial health is to teach them to allocate funds into three separate categories ahead of time and then determine which category a ‘necessity’ actually falls into,” Schuiteboer said.
“Here's a workable framework for a young adult earning money for the first time in their life: 50% of income goes to actual necessities (housing, food, transportation, insurance and minimum debt payments without the addition of streaming or premium tiers); 20% goes to savings and debt repayment, with the down payment or emergency fund treated as an automatic expense; and the remaining 30% of income goes to lifestyle, where all luxuries compete against each other.”
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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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