All financial advisers say saving early is the key to long-term financial security. Some millennials save about 15% of their paycheck for their 401(k) plan according to Bloomberg, which puts them on track to building a $1 million retirement portfolio.
Millennials may be getting the shorter end of the stick with today’s economy but that shouldn’t be reason enough to slack.
There’s always a way to become financially stable and that is through the right attitude and saving plan.
According to FXCM, millennials are characterized as a generation of “instant gratification,” meaning a group of people having little to no patience.
The reason for this is because millennials are used to getting information fast thanks to the Internet and smartphones.
But while “instant gratification” may sound like a drawback, this desire to get information fast may prove beneficial should millennials research about things that help improve finances.
Begin Early
It’s cliché but the older you get, the more difficult it is to save. The next thing you’ll know, your mailbox is already flooded with credit card bills and loans.
So as much as possible, begin saving now no matter how small your salary is.
Transamerica Center for Retirement Studies reveals that about 71% of millennials eligible for a 401(k) save as early as the age of 22.
It shows just how much things have changed since the baby boomer era when saving started at 35 years old.
If you’re having troubles with saving, try to adjust your lifestyle. Don’t pay attention to the latest trends in terms of gadgets and fashion. Be cheap, save, and you’ll be able to live comfortably in the future.
Aim for 15%
Most millennials with a 401(k) are signing up through an auto-enrollment. Many stick with this default option, which is a very low contribution rate of 3%.
Auto-enrollment, in addition to target-date funds, has always been considered as the solution to retirement security but this couldn’t be farther from the truth.
In reality, only a small percentage of plans automatically increase in contributions, and fewer people are doing it voluntarily, which means plenty are falling short in their savings.
Today, about 2/3 of millennials enrolled in 401(k) are not even enjoying their projected benefits despite the addition of target-date funds in their portfolio.
So in order to counter this, millennials should at least get their savings rate up to 15%.
Match Your Employer’s Contributions
In order to make sure that you’re contributing enough, try matching your employer’s contributions and raise that level with one or two percent until you are saving 15%.
Use this formula in order to keep yourself on track with the 15% that is needed today to save.
The most solid way to be sure that you’re reaching your retirement goals is to increase your savings gradually.
In many plans, there’s an option to auto-escalate your contributions in order to make sure that you’re also covering the yearly inflation rate.
Remember, there’s no easy way to becoming financially stable. But if you can sacrifice 15% of your salary every payday, you’ll get there eventually and reap the benefits when you’re not able to work anymore.
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