Freedom Financial Network Advises Millennials to Start Thinking About Retirement Early
Though common belief dictates that millennials (consumers born between the mid-80’s to the early 2000’s) prefer to indulge themselves in the “now” with technology and affordable luxuries rather than save, research has found that millennials actually are saving large portions of their earnings- though not as heavily for retirement as the generations before them. Freedom Financial Network has found that millennials actually are saving their money, but for things like travel, dining, and fitness. And though millennials know that they should start thinking about their retirement as early as possible, Freedom Financial Network has found that according to a survey by Transamerica, 72% of millennials believe that they are not as understanding about retirement plans or the process of saving for retirement as they should be.
If you’re a millennial and you’re looking to up your retirement knowledgeable, Freedom Financial Network is here to help! Here are a few expert tips to get you started on the road to saving.
Create an Emergency Fund First
Before you can even start thinking about saving for retirement, you need to create an emergency fund that will act as your safety net should something go wrong. If you create an emergency fund and set it aside for unexpected events, you won’t have to swipe a high-interest credit card for a costly medical or repair bill. So how much should you have in your safety net? Freedom Financial Network recommends saving enough to cover your living expenses for three to six months.
If that sounds like an unrealistic goal, start small and build up. Think about how much you’ll need for each individual emergency- for example, $500 for a sudden co-pay or $200 for a missed phone payment- and continually add to your nest egg until you’ve accumulated enough to handle any unexpected expense.
Build a Budget- and Stick to It
Take a few hours to sit down and create a budget that leaves you spending less money than you own. Write down your necessary expenses, and budget out how much you can afford to save a month, first into your emergency fund and then into outstanding debts. Treat contributions to your savings accounts as non-negotiable and as required as paying bills like your rent and electricity.
After you’ve created your budget, spend less than you earn. This will help you avoid using high-interest credit cards and getting trapped in a cycle of growing interest payments and missed bills. Even if you earn a promotion or salary increase, avoid falling into the lifestyle creep trap- while it’s fine to reward yourself, saving should remain your top financial priority.
Opt into a 401(k)
If your employer offers a 401(k) retirement plan, opt in as soon as possible- the contributions you make are tax deductible, and many employers offer to match the percentage you contribute up to 6% of your annual income. Even if your employer does not offer a contribution match, you should still opt in because the tax deductibles alone essentially mean free money for you.
If you are a freelancer or independent contractor, you can also start saving for retirement early. You can open a SEP-IRA and Self Employed 401(k), both of which offer low initial investments and little to no annual administrative fees.
Open a Roth IRA ASAP
Roth IRAs (individual retirement account) are unique because they offer compounding interest rates, or interest that is added to the account at the end of each year. This means that you earn interest not only on your initial investment, but also all the accrued interest you’ve earned as well. Since millennials have the benefit of time, Freedom Financial recommends that millennials open a Roth IRA as soon as possible and contribute to it annually to earn as much money as possible- the younger you are, the more time is on your side, and the more free money you can earn.
Pay Off Your Debts
Debt and interest on debt can be crippling, especially if you have a number of outstanding payments due and high-interest credit cards. Keep on top of your student debt payments and other secured debt payments on assets like home mortgages and vehicle loans.
If you owe a large amount of money on multiple high-interest credit cards, applying for a balance transfer can give you a year to save and pay down your principal balance without growing interest payments. However, be careful before you sign up for a zero percent interest balance transfer, because usually these “deals” transition into a much higher interest rate after the initial introductory period is over.
Put Your Money Away- and Don’t Touch It
One of the reasons why developing an emergency fund should be at the top of your priority list is because it will help you avoid the temptation to dip into your retirement account if you go through a financial hardship. Any money you withdraw from your retirement fund early will be taxed as regular income, plus a 10% penalty. When you put your money into a retirement account, consider it totally off-limits before your retirement.