04-14-2014 07:00 AM
Content provided courtesy of USAA.
by Scott Halliwell, Certified Financial PlannerTM
Is it just me, or does it seem like everyone describes the millennial generation as if each member is exactly the same? I’m sure you’ve heard or read some of these characterizations:
- “Millennials don’t trust people.”
- “Millennials spend all day on social media.”
- “Millennials don’t like church.”
- “Millennials don’t like being told what to do.”
And then there are the financial generalizations:
- “Millennials are underemployed.”
- “Millennials are burdened with debt.”
- “Millennials don’t like the stock market.”
- “Millennials don’t like the word ‘retirement.’”
Do these descriptions accurately fit every person age 18 to 34? I doubt it. In fact, I happen to know a lot of people in this generation, and they’re just as diverse as my Generation X group or my mother’s baby boomer crew. As my grandmother, from yet another generation, used to say: You can’t paint everyone with the same brush.
At Least One Thing in Common
There is at least one trait the majority of millennials have in common. In fact, it’s true for all of us: You need to save money for your future.
Please note that I said, “save money for your future,” not “save money for your retirement.”
Why the distinction? Two reasons.
First, the concept of retirement is sometimes so difficult to grasp that using the label can turn people off. They won’t even try to save. And just to be clear, this isn’t a generational thing. It’s an age thing. When you’re young, retirement often seems too big or too far away to consider.
The second reason? There’s a good chance that retirement won’t be the only goal for which you’ll need money down the line. For example, my wife and I are setting aside college funds for our two boys, and we’re also saving for Christmas this year. Both are great reasons to save, and neither has anything to do with retirement.
No matter your age, there is one thing nearly everyone can count on: Your income probably isn’t always going to cover 100% of your wants and needs all the time. As a result, you need to save money today so it’s available down the road.
A Simple Formula for Saving
So how do you put money aside, especially if your finances are already stretched pretty thin? Here’s a simple rule that’s easy to understand but not always to implement: Save before you spend.
Taxes come right off the top of your paycheck and so should savings. Think of it this way. You don’t build your lifestyle around your gross pay. You build it around your take-home pay. If you want to increase your chances of saving money, take it right off the top.
Set up direct deposit so that 10 to 15% of your pay is put into separate savings, investment or retirement accounts — before you even see the money. Besides the potential matching contributions, this is one of the big reasons why I’m such a fan of company savings plans like 401(k)s — they make saving money automatic.
Will saving first be harder for some people than others? Sure. Will it guarantee financial success? Unfortunately, no. But it will probably work better than trying to save what’s left after you’ve funded your lifestyle.
And it’s a good idea regardless of which generation you were born into.