If you were born from 1980 to 1995, you are considered to be a part of Generation Y, or as commonly known to the public, the Millennial Generation. And let’s face it, you have a lot of financial responsibilities on your plate like student loans or bills. Saving money may be the last thing on your mind, but it is important as that money can be used to put a down payment on a home (since millennials like you are predicted to be the top buyers of 2017) or saving for retirement. The thought of saving in general sounds impossible, but with some simple tips, the thought of savings is possible. It’s never too late to start!
1. Create a game plan – Just like your favorite sports team, the best chances to win is to have a game plan set. All game plans can be set for short term and long term goals and they can be tweaked to fit the current situation you are in. If you are still lost on how to start the game plan, try going backwards; visualize where you want to be in five, ten, even twenty years and how will you reach that goal.
2. Promote good financial habits –Start by saving your dollars and cents and start investing and or putting it away in a saving account, even if it’s a small amount. Put yourself in the “I am paying myself first” mentality and don’t make saving money an option. We aren’t saying when you get a raise, use all of the money from your raise for the “non-fun” options and accounts, but don’t use your raise for all fun options. When you start putting away money in different accounts, you will start building a special kind of interest: compound interest. “Saving $50 a week for a year, which is 52 weeks, will amount to $2,600. When adding compounding interest to the mix, that same $50 weekly to retirement savings at 2% interest (which is a relatively conservative interest rate), you will have saved over $8,000 after three years, over $16,000 after six years, and over $29,000 in 10 years!” says Melissa Lonie, Financial planner at MassMutual. When you use an account that uses compound interest, you can see how much extra money you will accumulate overall.
3. Start a 401(k) plan – When you use your employer’s plan, you are storing away money before taxes can be taken out. If your employer offers a match as well, that is another reason why to use their plan – free money in the long run! However if your employer doesn’t offer a 401(k) plan, you can open up a Roth IRA account. While your contribution to your account will be taxed, the money you earned in interest and withdraw from the account will be tax-free.
4. Pay off your high-interest debt first – Say, for example, you have a high interest credit card that’s 7% or more. If you invest your money in an account that earns you 7%, the amount you paid in interest will eat up the money you have accumulated in your savings. To avoid this situation, pay off any debts you have that are high in interest, from credit cards to student loans.
5. Risk VS. Reward – You might feel “old”, but you have more time on your side compare to Generation X or the Baby Boomers generation. Millennials can afford to take the ride up and down of the stock market. As you get closer to your target retirement date, you can see what’s going on with the market to make shifts to your assets and make lower-risk decisions as well. Another option to think about with Risk VS. Reward is insurance, and we are talking beyond your basic health insurance. When you start investing in life insurance, you are taking advantage of the low premiums while you’re in good health, unlike when you obtain it mid-life with some mid-life health complications. You can also lock in your low premium when you are in your 20’s and 30’s so it won’t increase when you hit your 40’s or 50’s. Life insurance can also be used beyond the death benefit, as it can help with living benefits. The cash value that accumulated in a permanent life insurance policy can be used to help pay for life’s anticipated, or even unanticipated, moments that goes on in your life.
As we predicted before, the millennial generation will be the top buyers for buying a home. With tricks like these that are targeted for the age gap, they can help you secure a more financial future and help you save your hard working income. For more information on investing your first home, contact us at 973-577-7008.
Melissa Lonie can be reached at MassMutual Greater Philadelphia to help live within your means while saving for the future.