Best Savings Plans For Millennials
How many articles will be written about the financial plight of millennials? In case you haven’t heard: we’ve got it rough. Be it a burst of unemployment following the 2008 recession, stagnant wages, insecure employment, laughable student debt, or massive rises in housing prices and increasing automation, saving money is difficult for most millennials.
But that doesn’t mean it’s impossible. It just takes a little extra planning. Here are a few steps you can take to put away some savings.
You’ve probably heard a variation on this from your parents, but the steadfast rule is: 10% into a savings account, always. Even if you’re planning a vacation or if your car blows all four tires, that 10% was never yours to touch, it was always going to be right in your savings account.
Savings are all about incremental change, which means even the simplest of techniques can take you far over a period of a few years. That’s why increasing the amount you put away each year is a relatively painless way to beef up your savings without making any drastic moves.
For example, if you push your monthly savings up 1% every month, your mind doesn’t process that you have fewer dollars in your pocket each month as it would if you decided to put away a chunk yearly. But that 1% can make a big impact.
If you keep stacking this 1% yearly, you’ll move from a non-negotiable 10% in savings to 11%, then 12% and beyond. This is effective because it slowly shifts you to leading a more frugal life while padding your savings account. And 12% of your income over 30 years vs. 10% is quite a bit of dough, even if it doesn’t feel that way at the time.
63% of millennials have at least $10,000 in student debt. Yes, you read that right. Often it seems the best approach to student loans is repeating the mantra “we’re all in this together.”
But on a more practical approach, getting rid of your student loans is an integral way to save money. Because as long as your student loans exist, the savings you are stacking up are somewhat illusory. They also won’t go away. If your student loan defaults, the government can and will garnish your wages or take your tax returns.
The wisest advice is to aggressively pay down the loans with the highest interest rates. That means putting all the money you can into getting that bad boy down to zero. Skip on going out for drinks once a month, pack lunches, brew your own coffee. Any extra cent helps tremendously because it means it’s a penny that won’t be multiplied with aggressive interest rates. And, as they always say, a penny that avoids compound interest is a penny earned.
How do you really spend your money? Do you know how much you spent today, or yesterday? How much you poured into food last month?
Humans are inherently bad at math, which means our finances, when left untracked, exist in a hypothetical space of rounding and estimation. Which can lead to a lot of financial surprises.
It sounds so obvious, but arithmetic is key. For example, spending $3 a day on coffee means $90 a month, or $1080 a year. It’s easy to think that little purchases aren’t effecting your financial outlook, but everything to do with savings is about the long term.
Which means truly being aware of every dollar you spend is maybe the most important part of saving. If you want to spend a grand a year on coffee, that’s more than fine. But that means you have to shave those costs off somewhere else. Being aware of your priorities instead of passively spending will make a significant difference in the long run.
Like all the hard things in life, including discipline, getting to work on time, and buying excellent birthday gifts, the ‘tricks and tips’ you hear basically boil down to: just do it. With saving money, a lot of it comes down to making a plan and sticking to it. But being smart about how you do it can make it a lot less stressful.