Every generation has its challenges and opportunities, and this is no different for today’s millennial generation. Millennials (people born between 1981-1996) are currently facing rising health costs, college loan payments and increasing living expenses while at the same time facing stagnant wages in the face of a pandemic. Despite these challenges, with a little preparation and planning, millennials have as good a chance as anyone to reach a bright financial future.
The key is to put good habits in place early and to leverage the years of compound interest available to you before any funds will be needed for retirement. Below are some tips and good habits for the unique situation millennials find themselves in today:
As millennials move up through their careers, they are likely getting better jobs with higher salaries. While it may be tempting to splurge as your cash flow increases, maintaining some budget habits, such as finding ways to save on meals, nights out, clothing, etc., will be beneficial in the long run as it’s harder to curb expenses once you’ve incurred them. For example, taking on an expensive car payment can put a dent in your cash flow options. So if you are careful to grow your lifestyle more slowly than your income – you’ll find it easy to make room for savings.
Many companies offer employer-sponsored savings opportunities, such as 401k plans. If you designate part of your paycheck to be diverted into a 401k, you’ll be putting savings aside before the money ever goes into your checking account. Even better, companies often encourage this behavior by offering a company match against a portion of your savings contributions. Still better is depending on the type of retirement account your company offers, many times these contributions are “pre-tax,” meaning you don’t pay taxes on contributions as they go into your account (when you retire, withdrawals will be taxed as ordinary income – but that’s a long way off). This is a great habit to develop; you can start small and raise contributions as time passes, and compounded growth over the years will really add up.
We’re all human, and we like to buy ourselves (or others) nice things. There’s no need to be impulsive or feel guilty when it comes to large purchases, but why not make these purchases part of your overall savings plan? Many choose to save for their purchase by saving double the amount; putting half toward that great new surround sound TV and the other half into savings. It’s hard to feel guilty when you know you’ve just beefed up your savings account while indulging yourself.
Many worry about whether they are eating right and make decisions about this with every meal. The same goes for working out: many millennials make fitness part of their routine and have beefed up their homes with exercise equipment. Creating and maintaining a savings plan is a great habit to get into – like diet and exercise, it will pay dividends now and long into the future. Creating targets and goals, like weight and fitness levels, can make savings part of your daily routine. Setting up automatic transfers and bill pay in your online bank account can help you stay on track and reach your savings goals.
Once you’ve started your savings habits, be sure you apportion your savings in a way that’s right for you. For example, many will do soin the following order: make tax free (and matched) contributions to employer savings plans, pay off high-interest credit card debt, create an emergency fund of at least three months’ expenses, then save for short term goals such as a new car.
It’s important not to be too hard on yourself. Once you’re aware of your financial habits and how they can improve, work on reaching these goals sooner than later. Don’t worry if you stumble a bit as you’re getting going – it’s just like diet and exercise. Keep at it, build the habit, and you’ll get there. If you don’t know where exactly to get started, meeting with a financial advisor can give you personalized advice and savings tips to get you on the right track.
Start your financial wellness journey by talking with one of our trusted advisors. To schedule an appointment, call 866.872.1866 or visit unionsavings.com for more information.