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Survey data shows that millennials are feeling confident about their retirement, but there’s always room for improvement.
In 2019, about 54% of millennials didn’t have a retirement account. For the confidence trend to continue, more millennials will need to build savings.
Behavioral finance expert and wealth manager Shari Greco Reiches says there are six things millennials need to know as they start (or continue) to save and work towards retirement.
1. You have to start early
Reiches says she wishes more millennials understood the power of saving for retirement sooner rather than later.
“If they start saving in their 40s and 50s, they could give up millions of dollars by not saving early,” she said. By saving early, you can take advantage of compound interest, where money grows based on money earned over time.
2. Start saving whatever you can, even if it’s small
Even if you don’t have lots of money to save each month, saving anything is better than saving nothing.
“It doesn’t matter how much it is. It’s just the habit of saving, and that’s really one of the big things,” Reiches says.
Once a habit is established, it’s always possible to save more each month later on. Even small amounts add up over time, especially when invested.
3. Make a budget that includes retirement savings, and stick to it
Budgeting is a good idea for anyone, regardless of income level.
Reiches recommends budgeting using the 50-30-20 budget, which puts 50% of your income towards expenses, 30% towards discretionary spending, and 20% towards saving for future goals, including retirement.
And, of course, sticking to the budget you make is just as important as having one in the first place.
4. Take advantage of your employer’s 401(k) plan, and get the full match
Matches essentially double what you contribute towards your retirement automatically, up to a certain percentage of your income.
“If a company is willing to give you free money and match up a certain [percentage], make sure that you’ve taken care of that,” Reiches says.
5. Don’t fall into the trap of emotional, impulsive investing
It’s all too common to get caught up in the idea that the best way to invest is what everyone else appears to be doing.
Reiches uses meme stocks as an example. “Everyone’s like, ‘These meme stocks can only go up,’ because that’s what they see on the news. That’s what they hear,” she said. “But sometimes you just need to take a step back and have a long-term view and be diversified and not put all your money in one bucket.”
Instead of following trends, it’s smarter to invest in a more measured way. Experts and financial planners recommend using index funds, a type of investment that tracks the overall market, for more stability long-term.
6. Learn how to live within your means
Living within your means is essential to successful saving, whether it’s for retirement or any other goal.
“If you live within your means, everything else falls into place,” she said. “You’ll have less debt. You have less stress, you could have more flexibility.”
Getting used to living a simpler life now could mean that you’re better prepared for retirement later.