A 2017 study by GoBankingRates found that the majority of millennials had less than $1,000 in savings and that a growing number had no savings at all. It is important for young people to reach financial independence and to be secure for retirement, even if it feels like that is too far in the future to worry about.
Millennials need concrete steps to save more money and to build a secure future. Shane Smith, a financial executive and consultant, shares these easy ways for millennials to start saving.
Trim Your Budget
A good rule of thumb to keep in mind is the 50/30/20 rule. 50 percent of your budget should be made up of necessary expenses like rent, gas, groceries, and healthcare. 30 percent can be spent on “wants” like travel, entertainment, and dining out. The remaining 20 percent should be used for savings and paying off high-rate credit card debt.
It is worthwhile to audit your own finances and to see which expenses are possibly dragging you down. For example, you could drop your cable TV subscription and go with an internet-only plan. You could also reduce the number of nights you eat out each week. Even a small step like making your own coffee at home can save you up to $30 a week. Using a budgeting app like Mint can help you to spot these trouble areas and make more sensible choices.
Trimming your budget takes discipline, and it may be hard to let go of some of your personal perks. Living a more secure lifestyle is often worth the inconvenience of penny-pinching.
Live Within Your Means
It is crucial to avoid the trap of using credit cards for daily expenses. Unless you are going to pay off your balances in full each month, using credit cards for all of your expenses means that you will be trapped with crippling debt in the future. Money spent on interest is an unnecessary expense. Live within your means and use the 50/30/20 rule. Your credit report and your future will thank you.
It is a good idea to have your bank automatically take out your savings from your paychecks. If you never see the money in your checking account, you won’t be tempted to skip savings in favor of unnecessary purchases. Saving it automatically will help you reach your goals more quickly and build good habits for the future.
When you set up automatic savings, also set up automatic payments for all of your other bills. This will help you stay on track with your bills and avoid late fees. Be cautioned that if you don’t have enough money to cover your accounts, you shouldn’t use automatic payments. This can put you in a trap of overdrafts. Avoiding bank fees is a way to keep additional money from leaving your account.
Start Retirement Accounts
You may feel that it is too early to start thinking about retirement, but it’s never too early. Take advantage of your employer’s matching 401K program or start an investment fund of your own. Since you are working several years out, you will be able to put your savings into a riskier portfolio, making your possible gains higher.
When people graduate from college, they are often tempted to start living more extravagantly. It can be a smart decision to stay within your college standard of living for a few years after graduation. Continue living with roommates or in inexpensive housing situations. This will channel more of your hard-earned money into savings.
Avoid Buying New Cars
A new car immediately depreciates by up to 30 percent in its first year. It is far wiser to buy a car which is two or three years old. This will be a reliable and safe choice while saving you a significant amount of money.
Sensible Savings for Millennials
While millennials are young, it is important to get into good habits around spending and saving. Shane Smith recommends following these steps to build your savings habit and to get your budget under control.
The most important thing is to live within your means and avoid taking on debt whenever possible. When you pay attention to your finances, you will have an easier time buying a home or another major purchase down the road.