Data from the Federal Reserve Bank of St. Louis indicates that the current savings rate is just less than four percent. With a rising cost of living, inadequate wages that don’t keep up with inflation and immense debt loads; it’s not surprising that individuals aren’t saving enough for a rainy day.
For youth, it’s extremely important to start saving for a rainy day, life-changing purchases (house, automobile and weddings) and retirement. Sure, putting away money isn’t as fun as buying the latest Apple product or a Starbucks latte, but paying yourself first on payday is crucial to remain financially stable, especially in your golden years.
It is difficult for young people to start saving, though: costly tuition fees, student loan and credit card debt, caliginous employment opportunities and low wages. However, it’s a good idea to adapt and save even small amounts, whether it’s $5, $10 or $25 per week or month. Remember, a small amount can go a long way over 25 to 30 years.
According to recent 2013 polling results from HSBC’s “The Future of Retirement: Life After Work” study, individuals approaching retirement say they regret not saving early enough. In fact, a majority of respondents say they could only afford retirement if they started saving by the age of 25.
In today’s labor market, it is extra vital to start dropping change into the piggybank now as opposed to later because there is a paucity of really good company pension plans being offered to employees right now. In addition to this, a lot of people are terrified about the future of Social Security, which currently faces an estimated $9.6 trillion in unfunded liabilities over the next 75 years.
The future might seem financially bleak, but all hope is not lost. By taking small steps, your financial prospects may appear to be bright after all.
Pay Yourself First
As soon as you receive your very first paycheck, it can be rather tempting to start spending it all at once. This is an ill-advised move and should be avoided entirely. Instead, pay yourself first before doing anything else and incorporate these measures:
- Establish an automatic savings plan
- If you can afford it, set aside additional funds for a rainy day
- Budget your spending between now and next payday
- Dump loose change into a jar
- Only purchase what you need (groceries, utilities, rent)
Let’s say you start saving $100 per month at the age of 25. In just 40 years, you will have already saved $48,000 plus interest. The savings amount each month should be increased according to income.
A mistake that many millennials make is that they dump their savings into a general savings account (at least they’re savings something!) It’s important to diversify and have different accounts for varying objectives. This is why it’s crucial to start listing your goals and aspirations in your life.
Do you want to buy a house within the next 10 years? Are you getting married and want to take a trip? Is there a plan on having children anytime soon? What kind of retirement lifestyle do you want to live?
These are reasonable questions to ask. There are very simple remedies to these questions: have different accounts for different aims.
- A low-interest general savings account for unforeseen events and emergencies
- A high-interest account for expensive, long-term buys, such as a house
- An investment account for retirement (speak to a financial advisor)
The Simple Life
Keeping up with the Joneses is no longer a feasible concept for households across the country. It has already become a costly endeavor, a purpose that has wiped out bank accounts and ruined families.
A recent UBS report found that millennials are saving their money like their grandparents who grew up in the Great Depression and World War II. Why? The Great Recession, which saw financial chaos among all age demographics. They fear putting their money into the stock market and in high-risk investments. Essentially, they want to keep their money without the fear of losing it during market turmoil.
It’s important for youth to live within their means as opposed to spending money as if it grew on trees. It’s not difficult: if you can’t afford it, don’t buy it and instead save for it. Generations before have done it and it’s a tried, tested and true model.
Interested in getting your finances back in order? Share your concerns, suggestions and ideas in the comment section.