Written by Shira Boss
More than half of millennials (people between the ages of 22 and 32) haven’t started putting money aside for retirement, according to a recent survey. The most common reason? They say they can’t afford to save.
But experts say the best time to invest is as soon as you start working. That’s because of the beauty of compound interest. Simply stated, money invested early has longer to multiply on its own—without you having to do anything at all.
Jim Rogers wishes he had been more money-savvy and saved more in his youth. “That’s something that I didn’t do when I was younger, and I’m paying for it now,” said Rogers, whom we video interviewed for our Smart Spending series. “I don’t have what I would like to have when I retire. Saving for college for my kids is tougher because I have to save more. But any advice I have for kids, especially if you are starting your career—definitely put money away for yourself and for retirement. That will help you a lot.”
If you’re a 20 or 30-something, follow these no-frills, no-fail steps to save for retirement:
Set a goal. Renee Shelley, of Goose Creek, South Carolina set her two children on the right financial path: “My 25-year-old daughter graduated with a Master’s degree at age 24. She obtained a teaching job in May 2012 and her goal was to save $10,000 her first year, which she did. My 22-year old is in his senior year in college. We will no doubt put him on the same path as his sister to assure he is financially stable.”
Make a budget. Amanda Arbia, 29, a high school English teacher in Dunedin, Florida, tracks every household expense. “We have created a budget that first allows for paying our bills—that's our top priority,” she said. She and her husband set aside enough money each month for expected annual and semi-annual costs, like car registration, renter's insurance, savings, and travel.
Put savings on autopilot. Enroll in your company’s retirement plan as soon as possible and make sure to set aside a portion of each paycheck—even 2 percent makes a big impact, especially if your company matches contributions. “My husband's second job provides some stock and a 401k, so he contributes a small amount each month,” Arbia said. “He started when he began that job at 15. After 10 years of his continuous small contributions, we have over $10,000 and are hoping the stocks will split soon. Start now, start small, and it will pay off.”
Live below your means. Life coach Abbe Lang follows the financial advice she gives to her own clients: Only spend the money that you would make in a low to average year. “That way, when I have a phenomenal year, or a good earnings year, I use that money toward savings,” she said.
Invest Smartly: What should you invest in now? Two words: index fund. Chose one that follows the Wilshire 5000 or S&P 500 – “broad market” funds that include hundreds or thousands of stocks. They’re diversified automatically. If as you get older you (smartly) want to add bonds, a “target retirement” fund will mix stock and bond funds for you and adjust the balance to be more conservative as you get closer to retirement age.
Have a fun fund. Forget instant gratification. “It's a lot more satisfying to stick to a budget and have the money you need for what you want, when you want it,” Arbia said. Her husband has a “tech fund,” where they put aside $10 a month (plus proceeds from anything he’s sold or birthday money he’s been gifted) in their budget. “When the new Xbox came out, he actually had the money he needed and bought it without guilt,” she said. “You'll be surprised how much financial freedom you actually have if you set aside money and stick to a budget.”
TELL US: What advice would you give 20 and 30-somethings about saving and investing wisely? Post your thoughts in the comments section below.
About this series: As part of our Smart Spending reporting, Patch is profiling people across the country who are creative and skilled when it comes to saving, spending and investing money. If you're a smart spender, we want to hear from you! Share your story here or in the comments section below.