While the age-old advice to start saving money early has not changed, new financial norms are holding younger people back from practicing these beneficial financial habits. According to the National Financial Educators Council, only about 16% of Millennials are optimistic about their financial future, while over half are worried about not being able to pay back a student loan.
With more young people choosing to live in the city where rent is high, dining is expensive, and commuting has become an annual expense, it is easy to see why they are not optimistic about their finances. The question then becomes: what can be done about it.
Do you cut back on the occasional splurge to put an extra $50 into savings? Or are Millennials expected to leave their friends, their lives, and their expensive rent behind to find cheaper options in the suburbs? These are the tough questions that determine whether or not you are starting your savings account early enough and building it way throughout your lifetime. But it doesn’t have to be this black and white. Here we can explore tips for saving while being penny wise, and five reasons to start a savings account now.
Reason 1: The Nest Egg
Often times people save to have a lump sum in preparation for a big event down the road. There are many things a nest egg could be used for, some common uses would be:
- Invest in a personal project away from work
- Finance your own business
- Take a much-needed vacation
- Returning to school for education
Reason 2: The Emergency Fund
Life happens. It always seems to happen when you least expect it and when you are least prepared. Having a financial cushion to fall back on can be a lifesaver, especially when injuries or illnesses keep you away from your job.
Reason 3: You’re Probably Going to Stay Alive… For a Long Time
Life expectancy has reached an all-time high; it’s risen to almost 80 years. Remember that this expectancy is simply an average, which means some will exceed that average.. If you plan on retiring at some point in your life, you are going to have to answer for anywhere between 10 to 30 years of unpaid living. The only way to get through this is with a properly planned savings account.
For retirement savings, consider the following:
- Set up an IRA to invest in your retirement
- Check with your company to see if they have automatic investment options
- Research high-risk, high-yield investment opportunities to make use of your long investment period
Reason 4: Buying a Home
Renting an apartment is not the same financial investment as paying off a mortgage. Yes, both require roughly $2,000 each month in rent to keep a roof over your head. However, one goes right into the pocket of the apartment owner while the other goes back into your pockets once the mortgage is paid off.
Having money saved up in a savings account will help with the down payment of your home. Around 20% of the total cost of the house is suggested as the down payment. If you are considering a $250,000 home, your down payment should be $50,000. This is equivalent to saving just over $400 each month for 10 years.
Expect it to take time before you reap the rewards of a savings account. As the saying goes: the only way to climb Everest is to take one step and then another and then another…
Reason 5: Avoid the Debt Cycle
With the skyrocketing credit card rates of 17% to 20% APR, the cycle of debt is a vicious battle many find themselves in. Ridding yourself of debt involves the same tactics as avoiding the debt cycle altogether.
- When in debt – Set your monthly payment goal to be twice the minimum monthly amount. This will reduce the time spent paying back your debt by over 50%.
- Stick to the payments – Once you have acquired the habit for paying off debt, do not stop! Keep putting that chunk of money into an online savings account each month to avoid falling back into debt.
- Raise your savings payments – Whether you get a raise or receive an unexpected birthday check from grandma, throw a percentage of it into your online savings account. This will help solidify your savings goals.
Saving Money is a Habit, Not a Number Value
If you are able to put away $50 to $100 each month, consider that a great start to a prosperous future. If you plan to save up for a major event that isn’t going to happen anytime soon, credit union certificates are a great way to store money safely and yield higher dividends. While a yearly savings of $600-$1,200 doesn’t sound like much, the habit is more important than the value.
As you advance in your career, chances are your income will increase. Although, you may only deposit $70 each month into your savings right now, once you finally get that much-deserved raise, that could increase to $130 per month, then eventually grow to $200, $333, and continue to increase!
Start Saving Today
Whether you are saving to buy a home or to retire, the best way to do it is to start young. For optimal savings accounts benefits, put 20% of your income toward different forms of saving. To do this, you might have to rent a cheaper apartment, eat out fewer times each week, and find other small ways to cut costs. But after 5, 10, and eventually 20 years of positive saving habits, you will be thanking your younger self for achieving your financial goals.
The content provided consists of opinions and ideas and should be used for informational purposes only. Mission Federal Credit Union disclaims any liability for decisions you make based on the information provided. References to any specific commercial products, processes, or services, or the use of any trade, firm, or corporation name in this article does not constitute endorsement, control or warranty by Mission Federal Credit Union.
National Financial Educators Council. Financial Literacy Statistics.
Nielsen. Millennials Prefer Cities to Suburbs, Subways to Driveways.
TIAA. How much of my income should I save every month?