I’ll start this piece with something that’s painfully obvious to a majority of millennials, yet curiously absent from the financial advice Boomers and Xers keep giving us: It’s hard to save money when you barely have enough to make ends meet. As a generation, we’re struggling to keep our heads above water, so being told to save more money is laughably ignorant. While this article is true for all millennials, actually carrying out the advice within may only be possible for a small percentage.
It’s okay if you can’t start saving now — the point is to start when you’re financially stable enough to do so. The truth of the matter is that the reasons why it’s so incredibly important for us to save money will still be valid for many years to come. They are:
Because Emergencies Happen
It always seems that emergencies pop up at the worst time possible — which is why it’s imperative you set up an emergency fund. An emergency fund is almost like an insurance policy, except instead of paying premiums to a company that may or may not pay out when you need it, you’ll always get 100% of what you put in, back. It’s the savings account version of, “just in case.”
Financial emergencies can come in many forms, including job loss, significant medical expenses, and home/auto repairs. A well-stocked emergency fund will prevent you from having to rely on loans or credit cards and adding to your debt in times of need. The general rule of thumb is that your emergency fund should contain three to six months of expenses — that way if you do lose your job, you’ll have enough money to get by until you can find another.
It’s a good idea to start small with your emergency fund, as setting small and manageable goals will give you a better chance of reaching them. Open a new savings account and get into the habit of making regular deposits. It doesn’t matter how frequent those deposits are, just set a schedule and stick to it. Even if you can only afford $10 a week, it will add up over time. Once you save one month’s worth of expenses, celebrate your achievement and then keep on building that fund!
Because Your Credit Score Matters
A lot of Generation Y is wary of credit cards — and for good reason. With the startling amount of student loan debt we’ve accrued, taking on more is the last thing we want to do. And the sky high Interest rates aren’t exactly a turn on, either. However, not having an established credit history often only leads to heartache, as your credit history is what determines your credit score.
Your credit score is used by many companies as a measure of your reputation, that is, how likely you are to pay your bills. It’s used when you’re seeking a mortgage, apartment, car loan, car insurance, cell phone, utilities, and even jobs. When applying for credit cards, your score determines not only whether you will be given credit, but also the credit limit and interest rate you’re eligible for. If you have late payments on bills, no credit references, or unfavorable credit card use, your credit score will likely be low.
In order to build a solid credit history, open a checking or savings account and manage it well. Once you’ve saved a few hundred dollars, open a credit card and make a few purchases. Use your saved money to pay off the card in full at the end of each month. Do not buy anything you do not have the money to cover. The point is to accumulate a good credit score, not debt. Be mindful that it will take a few years to build credit.
Because Our Future is Uncertain
Preceding generations were lucky enough to be able to rely on company pensions and Social Security to get them through their golden years. Millennials are not so lucky. Pensions are the product of a bygone era, and Social Security has a long-term projected deficit. According to the Board of Trustees of Social Security, the Social Security retirement benefit program should have enough funds to pay out full benefits until 2034. After that, there will be enough tax revenue coming in to pay out about 77 percent of scheduled benefits.
Since millennials are looking at receiving only three-quarters of what we paid into government support, we need to plan strategically to prepare for retirement. We all need to take a minute to estimate our retirement income, and then start saving and investing as soon as possible. The amount you should save per year depends on your age and how long you plan on working until retirement, but a standard figure is roughly 70 percent of your current income.
To build up your nest egg, you should start by paying off all of your debt first to avoid accruing interest. If your employer offers a 401(k) match, take them up on it. Then, put your raises and bonuses into your retirement account while continuing to live on your previous income. Earmark 15 percent of each paycheck for retirement savings. It’s also a good idea to put money into a Roth IRA, as you won’t pay any taxes on withdrawals. While this may seem impossible, just remember that even saving a small amount of each paycheck will pay off in the long run, thanks to the magic of compound interest.
Because You Deserve Happiness
Once you have an emergency fund saved, you’ll be able to save for the things that bring you happiness. A down payment on a house or vehicle, a dream vacation, or that one big ticket item you always wanted, but could never afford. You can save for your children’s future, or home improvement projects, or your hobbies. Whatever brings you the greatest amount of joy — make it a priority to turn it into a savings goal. Millennials have had more than their fair share of stress, and it’s time we make happiness our first concern.
It’s easy to say that money doesn’t buy happiness, but that’s not always the case. However, money is just a thing, not everything. Remember to take time out of each day to be thankful for what you do have, no matter how big or small. And then start building up those savings as soon as possible.