Why All Young Adults Should Start Saving Now

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There is this sad reality about money that concerns the country’s young adults – the millennials. It seems setting some money aside for future needs is the last thing in their minds. They are so comfortable living in the present that it never occurred to them to think about, much less save for tomorrow.

To them, saving money for future purchases doesn’t make sense at all. Why should it be when they can easily pull out their credit cards and buy the things they want right then and there when they want to? Besides, the credit card’s low minimum monthly payment that usually comes also with extended payment periods fit their meager take home pay perfectly.

They can’t make sense of the idea of saving for a contingency that may not happen at all or may occur several decades from now. They believe saving money is something they will seriously consider at a later date sometime in the future.

What they fail to realize however, is that at some point in time, they will have to contend with tremendous financial obstacles they may not even be able to hurdle so easily. For one, it would be difficult for them to immediately land good-paying jobs after college, and we know too well that the meager pay from entry level jobs would only allow them to live a payday to payday kind of life.

Then, there is the burden of settling the huge student loan debt they have accumulated throughout their college days, which may take them decades to settle.

Many of them start living on credit, relying heavily on the use of their credit cards even for their most basic needs. In the process, they get caught in a never ending cycle of accumulating credit card debt and paying off these debts over and over again throughout most of their entire adult life. Decades hence, they are still unable to save enough to live comfortably in retirement – a dream every salaried worker works hard for to make it happen.

Unfortunately, most millennials hardly care about retirement. It is too far away for them to even start thinking of saving for it now.

If you look at it closely, millennials are simply replicating the bad habits of their ‘baby boomer’ parents who we know were struggling to retire because they neglected to look at the future and failed to invest enough to secure their golden years.

Because of their devil-may-care attitude, millennials are likely to face less-than-bright futures. According to a recent survey conducted by Google for ‘Go Banking Rates’, 42.2% of millennials age 18 to 34 have not saved a single penny for their retirement while a mere 29.8% have less than ten thousand dollars in savings.

 The same survey revealed that only about 26% of these young adults below 30 years old have actually invested money on equities. In other words, majority of our millennials are missing out on big opportunities to become financially fit and build their retirement funds.

 If you are one of these unfortunate millennials, this book is for you. It is high time that you start rethinking the direction you are taking. There is still time to avoid getting caught in the whirlpool of credit card debt where you may not be able to get out of easily. There is still time to start saving money to build a nest egg and set up an emergency fund for other unexpected contingencies.

 Don’t ever think that because you are young and retirement is still decades away, you should not save for it. There is no such thing as being too early to start setting up a retirement fund.  Ponder on this. If you start saving late, say at the age of 35 rather than 10 years earlier at the age of 25, you’ll be missing out on 10 years of interest earnings on your money. If you decide to start saving and investing only after you reach forty years of age, you’ll need to save 3 to 4 times more to be able to put together the same amount of retirement fund at age 65.  Think of it another way. If at the age of 25 years old you start saving a hundred dollars a month and invest it with a conservative 6% annual return, you will have over $185K by the time you reach 65 years old.

Saving money doesn’t mean you have to strictly tighten your belts and forego all of the creature comforts you’ve been used to all these years.  Saving is about spending your money intelligently. It is about keeping a constant tab on your finances to avoid accumulating ‘excess fat’ in your spending budgets.

The main obstacles why most millennials are unable to start saving and investing is because of the meager income that comes from their entry-level jobs and the burden of paying off huge student loan debts. There is practically nothing left from their paychecks to save. This should not hinder them though from starting the habits of saving and investing wisely and building their nest eggs early in life — even in the smallest way possible.  Saving is about having the discipline to manage your money smartly. There are many ways you can jump start your own savings program methodically without putting too much stress on your current lifestyle. Start by changing the habit of saving only whatever is left of your pay check after you’ve paid off the rent and other necessities.

Instead, commit a fixed portion of your monthly paycheck to savings and have it automatically transferred to a separate savings account or a retirement fund. This way, you’ll have something in your savings account before your paycheck totally disappears from your hand.

Here are more tips you can make use of to start saving immediately for your future whatever financial status you are currently in:

The idea of paying yourself first when your monthly paycheck arrives before you start paying off any of your bills or before you go on a shopping spree is the best way to force yourself to save money every month. Ideally, you should be earmarking ten to twenty percent of your monthly income for savings. However, if your monthly bills and other recurring expenses would make this impossible, then it is alright to start with something smaller than 10% as long as you make it a point to increase the amount saved each month if and when your income improves – until you are finally able to set aside up to 20 percent of your monthly income savings.

 

You should also make sure the amount you set is automatically transferred to a separate savings account or deposited straight to a retirement fund. The goal is to make sure you have some funds stashed away for rainy day requirements before your whole paycheck totally disappears from your grasp.  Cut the habit of buying on impulse, especially with high ticket items. Think twice before making any major purchase. If possible, sleep on it overnight before deciding to make the purchase.  Stop using your credit card or try to use it only for emergency purchases. If you can’t, then at least use it sparingly. Don’t forget that when you have running balances on your credit card, there’ll be interest that will be added on. Besides, you are actually spending money you haven’t earned yet.

 No matter how cash-strapped you are or how tight your budget is, try to establish an emergency fund separate from your main savings. You can start with as low as $25 per month or any amount that will not be a strain on your budget. Your goal is to build up a cash reserve that is equivalent to at least 3 months your living expenses.  This shall serve as your safety net that will help you cope with emergencies. You may end up selling some of your investments for cash prematurely if you fail to establish an emergency fund with sufficient cash for unexpected expenses.  Discard any money-draining habits you may have. Replace them with the habit of always looking for a cheaper option or bargaining for a better price before letting go of the penny.  Instead of hailing a cab or booking an Uber ride, take a public transport to get to your destination. You will easily save around a thousand a month doing so. You may also consider riding a bike to work if you happen to live in a place with flat roads and no hilly portions.  Be mindful of your debts and your spending habits. Keep them in mind when you create a budget. This will prevent things from growing out of control. Start by listing down all your cyclical expenses and then figure out where you can cut corners and trim down the ‘excess fat’ in your budget. Scrubbing your budget to eliminate unnecessary expenses, while at the same time trimming the regular expenses to their minimum should be the cornerstone of every saving scheme to be successful.

 By being creative on your cost cutting chore like cutting off the discretionary expenses, you’d be able to reduce your expenses by as much 20% or even more. You can channel the money you save straight into your rainy day fund or better still, use it to pay off debts.

 Augment your earnings by getting a second job or by engaging in a seasonal part time job. The more money you earn, the more you will be able to stash away for your rainy day requirements.

 Map a plan on how to rid yourself of your student loans. Carefully study how you can come up with a plan to pay off your student loan debt. Explore all possible payment schemes with an eye for the one with the least amount of accrued interest. Find out if consolidating your debt will benefit you more. If there are student loan forgiveness programs available, make use of it to get out of debt.

Accumulate as much knowledge as you can about investments and once you are equipped with sufficient knowledge, start investing your savings on select financial instruments. Inflation has a funny way of eating up your savings if you simply put it in an ordinary savings account which earns a mere 1% annual interest.  With inflation at 3% to 4%, it’s a matter of time before you lose a sizable chunk of your savings to it.

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