Security and Freedom: Why You Should Save for Retirement
Millennials face a trickier saving situation than other generations. Despite what some news outlets love to tout, we do save, but there’s a major roadblock in our way: millennials simply don’t make that much money.
Millennial Finances More Complex than the Media Makes Them Out to Be
Wage stagnation for Millennials is a global problem. A report by The Guardian found that in “the US and Italy – disposable incomes for millennials are scarcely higher in real terms than they were 30 years ago, while the rest of the population has experienced handsome gains.”
When there’s not a lot of money in your wallet, it’s hard to save. If there’s not a lot to spread around, certain areas get skipped over. In our case, we’re skipping over the long-term goals to achieve the short-term ones. Scrimping and scraping to be able to put away $100 a month for a retirement that’s years away feels like yet another huge sacrifice we have to make - and it doesn't always seem worth it.
Millennials are already a pretty frugal generation. We live with roommates, bike instead of drive, and delay milestones like marriage and homeownership. Do we really have to give up dinners out to save an extra $100 for retirement?
I know from first-hand experience that low wages are a barrier to saving. In 2014, I made $15,000 total. I’m talking pre-tax income. Plus, I had $18,000 in student loan debt hanging over my head. It was a bleak financial picture, and even though I was 25, there was no way I could save for retirement. Where was that money going to come from?
As bleak as that year was financially, I made things harder for the future me by not saving any money for retirement. Sure, I got myself together the next year, made more money, paid off my debt, and started saving for retirement. But time is a saving advantage you simply cannot get back. The longer you wait to save, the harder you make it for yourself.
Newsflash: You need to care about yourself. This is your LIFE. This isn’t a dress rehearsal. The future you is just as important as present you. Even if it is 50 years away, 70 year old you is still YOU. And trust me when I say, you’ll still want to eat, drink and have a place to live when you’re 70.
It’s time to break the mold. Don’t be the average American. Be better. If you start saving for retirement when you first graduate college, a little truly goes a long way. All through the magic of compound interest.
Compound Interest + Early Savings = Massive Future Success
Described as "interest on interest", compound interest is money you earn on your principal AND on the interest you earn. The more money you put in, the more money you earn. Not only do your contributions bump up your principal, but you also earn interest off the total principal, and off the interest, you earned between deposits. #magic
I mean, if you really hate saving money, it’s all the more reason to start early. If you save for the first ten years of your employment, you can potentially make enough money to stop saving and still outpace those who get a later start.
Don’t let the fear that saving for the future comes at the cost of enjoying today. It’s not that black and white. You can live the good life while still gifting your future self-security in retirement.
You Don't Have to Sacrifice Everything Now to Save for the Future
If you’re looking for specific changes to make to save money, think outside the box. Yes, the big savers are the big ones for a reason: get a roommate, sell your car, move back in with your parents. Those are great ways to make huge financial strides in a short period of time. If that feels like too much of a sacrifice, remember my golden rule: little differences add up to big results.
I used to go to my favorite bar at least once a week for a little thing called "$2 Tuesdays." Any well liquor with one mixer, or a selection of certain beers (PBR anyone?) was only $2. You could have yourself a grand old time for $10 at those prices.
Except it was was never just $10. I also always left a big tip, usually 100% (because when you go to the same bar once a week for literally YEARS, you get to know the bartenders pretty well. You want to tip your friends.) And of course, there was a late-night snack to help soak up the drinks. Sometimes there was a cab back home. So my $10 night out turned into a $30-$40 night out.
Let’s do that math. $40, four times a month equals $160. $160 x 12 months a year is $1,920. That’s more than enough money to start saving for retirement. Instead, I was drinking that money away. And that was just my Tuesday drinking! If I went out just one other day a week, I could easily be spending double that in one year.
If you’re someone with a love for restaurants, cut back to one night a week. Ask your boss if you can work from home one day a week and pocket the gas money for your retirement accounts. Trade-in soda at the grocery store for tap water at home. Sell old books, clothes, or furniture you don’t need.
I gave up nights out to see a big difference in my bank account. Be honest with yourself about one area of spending in your life. You don’t have to go cold turkey on every non-essential spending category! Remember, you want to enjoy the present as well as the future. Try cutting back in a different area each month. See which changes feel sustainable, and make them a new part of your lifestyle.
I found by giving up my "$2 Tuesdays," I was able to save more and make more time for activities I had been ignoring. I read more books, and I powered through all seven seasons of "The West Wing." (A decision I stand by!) Don’t think of saving money as a sacrifice. You’re simply opening the door to a new kind of life for yourself.
There are a million ways to save or to make a little extra cash. Once you’ve found a way that works for you, just make sure that the savings find it’s way into your long-term investment accounts.
Time Is On Your Side - If You Use It
Think about the future you. Think about what you wanted to be when you were a kid. Was it an astronaut? The president? I’m betting you didn’t think, "I want to be homeless and broke when I’m old!" By not saving for retirement, that’s what you’re setting yourself up for.
Find the money in your budget to start saving for retirement now. Gift your future self the kind of life you’re enjoying now instead of condemning yourself to a scary future. Little changes make big differences, and time is on your side in your early twenties.