Starting off on the wrong foot financially when you’re in your 20s can haunt you for decades to come. The millennial generation has witnessed firsthand the fallout caused by bad money choices and it’s substantially shaped the way they approach things like spending and debt.
Despite being aware of the need to start saving for the future as early as possible, 20-somethings are still stumbling when it comes to building their nest egg. For millennials who are trying to get a jump start on retirement, here are the four worst spending habits to avoid.
1. Splurging on experiences
When it comes to how they spend their money, the latest generation of young adults puts a heavy emphasis on creating lasting memories versus surrounding themselves with stuff. Research shows that the overwhelming majority of 18- to 34-year-olds would rather fork over their hard-earned cash to pay for real-life experiences than material goods. That desire to live in the moment that’s shared by so many 20-somethings can come at a high cost in terms of how it affects their retirement savings.
For instance, let’s say you landed a job making $40,000 a year. You chip in 3 percent to your 401(k) and your employer matches half of every dollar you put in. If you start contributing at age 25 and keep putting in the same amount until you turn 65, your account would be worth roughly $527,000. Now, assume you double up your contributions to 6 percent. Once you’re ready to retire, you’d have over $1 million in your 401(k).
When you run the numbers, it’s a big incentive to cut back on some of your experience-driven spending. Skipping out on pricey outings in favor of low-cost or free entertainment every once in awhile is a really easy way to find the extra money you need to save without missing out on any fun. For instance, instead of going out to dinner with friends, you could try hosting a regular potluck night each week or a Sunday brunch buffet. The money you would have spent can get funneled into your savings account instead.
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