Saving money is something that everyone knows they should do. As expenses rise and incomes remain stagnant, it becomes harder to save money. This is particularly the case for millennials.
Many millennials will attend college and spend a lot of money on tuition. Then, they will graduate and move on to a career. In many cases, millennials have difficulty making ends meet as student loans, rent or mortgages, and daily expenses mount. Even if they want to save and are thinking about the future, they may not be sure how to get there.
It’s recommended that people begin saving as early as possible because it will help them build their financial wealth over time. And, if they’re taking advantage of savings accounts that assist them in accruing interest, then it only makes more sense to start early to capitalize on those earned dollars.
Although it may seem daunting at first, millennials can take advantage of some great tips toward their retirement savings. Here are a few ways to get started.
1. Open a 401k
Many millennials might feel apprehensive about opening a 401k because they might not fully understand the way it works, or they feel as though it might be too risky. When you’re already having a hard time-saving money, setting aside more money for a 401k might seem too stressful.
Nevertheless, a 401k is a great way for millennials to start saving for retirement for a few reasons.
It’s A Form of Savings
When you contribute to a 401k, you’re not able to touch it until you retire. Only under extenuating circumstances are you able to take money out of it, but you should expect to pay a hefty penalty and taxes.
A 401k Is Tax-Deferred
A 401k allows an individual to defer their taxes when contributing. This means that money can be taken straight from a paycheck and placed into the 401k before income tax. This might allow you into a lower tax bracket since you’re taking home less in net pay.
A 401k Can Be Facilitated Through an Employer or Another Professional
If financial terms and lingo make you nervous, you can always open a 401k through your employer. They usually take care of all the paperwork for you, and you mostly choose your contributions and sign your name. This makes it much easier to start contributing to your savings without needing to shop around for a firm that offers these services.
You can also find 401k services through a professional accounting firm. It’s your preference regarding getting one set up. Sometimes, a professional accounting firm might be able to offer you more expertise and answer more questions than your employer.
Employers Contribute to 401k Plan
When you open a 401k with your employer, you are enlisting in getting free money on top of the contributions that you’re putting in. Employers will contribute a percentage to your 401k - giving you more money to build up over time. It would help if you took advantage of this offer, or you miss out on absolutely free money toward your retirement.
If you’re unsure about how to get started with a 401k, contact a professional accounting firm, and they can help guide you in making the decision most feasible for your financial situation.
2. Open a Roth or Traditional IRA
IRAs are great options for people who are just learning to invest their retirement savings. They are easy and can be opened at any financial institution of your choice. A traditional IRA is preferred among older individuals who want to see the tax break. This would be a good choice for those who are established in their careers. A Roth IRA is not tax-deferred, so it’s beneficial for those who expect to see themselves in a higher tax bracket in the future. Roth IRAs require contributors to pay taxes at the end of the year that the deposit is made.
Roth IRAs also have income and contribution limits, so be sure to research these rules and see if you qualify. If you switch jobs between your contributions to your IRA, you can always roll the amount over into another IRA.
3. Develop a Budget and Stick to It
If you want to start saving, you also need to balance that behavior with less spending. Millennials are constantly inundated with the newest tech devices and trends that entice them to buy things they don’t need. Instead, it’s time to sit down and determine the best budget that will fit your spending needs.
You can also use this time to go through and see what costs you can cut out of your monthly expenses. Many people don’t know that they can call their utility companies to negotiate a lower monthly bill. Maybe you might want to consider cutting down on your cable bill and stick with cheaper subscriptions for channels a la carte style.
The more you trim down your expenses, the more you have to save for retirement. Over time, you won’t even notice those missing things.
4. Stash Away Any Extra Money
Did you get a nice holiday bonus at work? Or, maybe you got a refund check from overage amounts in your mortgage escrow. Perhaps you picked up a side gig to start making a little extra income.
Wherever the money comes from, you should make an effort to put that extra money into a savings account, especially one that accrues interest. This is extra money you didn’t calculate in your original budget, so you can easily set it aside and watch it grow. Continuously adding money to this account will build up over time and give you extra money in your retirement years.
5. Automate Your Savings
In addition to having a savings account, you should also set up automatic payments to that savings account on at least a monthly basis. Doing so will put that task out of your mind, and by the end of the year, you will notice that you have saved up an amount you normally may not have on your own.
You can also set up automatic savings contributions where your bank can round up to the nearest dollar of every transaction and put that into your savings. It continues to provide ways to add up money without you needing to do anything.
6. Pay Off Debts
Many millennials state the reason it’s difficult for them to save money is that they have so much debt. This is somewhat accurate. Paying off debt as soon as possible is always a good idea because you can save a significant amount of money on interest and not feel tied down to any outstanding money owed. So, when you’re trying to save money, you should do two things: pay off debt as soon as possible and put money away in a savings account.
7. Figure Out Your Goals and Expectations
Are you trying to live in a small house in a small town in retirement? Or, do you want to spend the majority of your retirement traveling the world? It’s good to set a goal for yourself, so you can visualize what to expect in your retirement.
Determining the life you want to have in retirement will help you figure out just how much you need to save when you retire. It will help you decide how aggressively your money saving behavior needs to be.
Having goals and expectations are also a good way to stay motivated. Think about when you’re saving for that big purchase such as a car or a vacation. It keeps you on track towards saving for that goal. So, you can feel very accomplished once you’re able to reach your goal.
The financial industry can be an intimidating place for millennials. There are so many rules and terms that it can be scary to start investing in your future. The nice thing to know is that there are several options to help millennials get started saving.
Millennials live in an era in which things move fast, and there’s an overwhelming amount of information available. Sometimes, it may be difficult to decipher which information is sound and good.
This is why hiring a professional financial advisor may be a good idea, as it can help you understand all the specifics of retirement options and stick to proven saving methods. Accountants have the expertise to provide you with sound advice and resources to help you get started saving. Contact one today to see how you can begin preparing for your retirement.