Saving Your Money

Despite substantial loan debt, notoriously low salaries, and ‘live for the moment’ tendencies, Gen Y is developing a saving habit. More millennials are socking it away than Gen X and Boomers, and you’re saving more this year than last year. Overall, that’s great news. But not for everyone. Surveys indicate that 1 in 6 millennials has $100,000 or more in savings. They also show that 4 in 6 have absolutely nothing saved for their future. Wherever you fall on this savings spectrum, there are steps you can take to increase your nest egg, even on a small salary. First, don’t confuse income with net worth. It’s not how much you earn, it’s how much you save, that puts you on a sound financial track.

Here are some ways to start:

NEVER SAVE LEFTOVER MONEY

There usually isn’t any. You probably spend everything you take in. That’s why it’s critical to pay yourself first. Decide on a realistic percentage of your of income, then automatically stash it in savings, and leave it there. $20 a week (the price of one movie) adds up to over $1000 a year. And you won’t even miss it. Don’t forget to increase your savings amount with each raise.

LOOK WHERE YOU LIVE

If you’re currently living in your parents’ home, you have the absolute best opportunity to save most of your income. (And you have absolutely no excuse not to.) But for the rest of us, living expenses are the largest bills we pay each month. Can you downsize to a smaller apartment? That could save you hundreds each month. Perhaps rent in a less-classy part of town? A longer commute might also equal less-expensive apartment prices. Or consider a roommate to split expenses in half.

HOARD YOUR SIDE HUSTLES

Make a commitment to save every bit of your extra earnings. Or create income by selling stuff you won’t miss. Snap, post and sell clothes, videos and CDs, games, jewelry, even cars. Not only will you benefit from the de-clutter, you’ll be generating cash with practically no effort. You can start with eBay, Amazon and Etsy. Then look into 65 other outlets on thebalancesmb.com

SO LONG, SUBSCRIPTIONS

Do you really need HBO, Hulu, and Audible? Sure, it’s just a few bucks a month. That’s exactly how the companies snag you. Choose a single, less costly option, like Netflix. Then hit the local library for books, music and movies, both actual and digital. Don’t forget to cancel those magazines too, and read free, with the Zinio.com app, available through the library.

YOU RAISED THE CASH. NOW WHAT DO YOU DO WITH IT?

The traditional combo of a checking account and a savings account from your local bank has morphed into a more accessible, flexible way to handle money. Studies show that over 5 million millennials don’t even have checking accounts. You’re wary of restrictions like minimum balance requirements, maintenance fees, and the inconvenience of branch banking. Result: nearly 95% of millennials do online banking exclusively. Your preferences as the “unbanked” generation have reverberated throughout the financial industry, and institutions are rushing to offer digital services. Which means it will be easier than ever for you to manage your money.

THINK MULTIPLE

Experts recommend opening more than one savings account. For instance, have one for bills, one for emergency funds, and maybe a third for long-term goals, like a car, home, or honeymoon. This way, you always have a clear picture of where you stand financially.

ONLINE BENEFITS

Internet-only banks may offer higher interest on savings, and many come with free checks and a debit card. Another plus: it’s harder to get to your money, because it usually takes a few days for cash to be transferred to an accessible account. So you’re less likely to use it impulsively. Some online banks offer automatic savings options, such as an app tied to a credit card that enables you to round your purchases to the nearest dollar amount, sending the extra change to your savings account. Compare Kiplinger’s 2018 top banks for millennials at advisoryhq.com/articles/best-banks-for-millennials

MOBILE MONEY MANAGEMENT

The cell phone has easily outpaced the internet, becoming the most-utilized banking method of Gen Y. You virtually live with a phone in your hand. It makes sense to do your bill paying, transfers, and even your budgeting with it. You can sign up for text or email alerts when your balance falls below a particular level. This will help you avoid costly fees or penalties. And a person-to-person electronic-payment app (such as PayPal, Venmo and Zelle) lets you send and receive money with a click. www.thebalance.com evaluates this year’s best P2P payment apps.

NOT ALL SAVINGS ACCOUNTS ARE CREATED EQUAL

Whether you have an account with a brick and mortar bank branch, or do all your banking online or on your phone, every financial institution needs deposits in order to make loans and grow. The longer they have use of savers’ money, the more interest they are willing to pay them. So banks offer a range of savings account types, with different features, terms and interest rates.

Here are the most popular types of savings instruments:

Traditional Savings Account – Good for short and long-term savings. You earn interest on deposits, and there are no minimum deposit requirements. You have instant access to your money by making a withdrawal at any time. Your savings account may have a passbook, or you may receive a statement in the mail each month. Many savings accounts come with a debit card, which gives you the added convenience of ATM usage.
Money Market Deposit Accounts (MMDAs) – Better for long-term savings. Banks offer higher interest rates on these accounts, because they expect you to keep your savings relatively untouched. You are usually limited to six withdrawals per month, and you may be charged a service fee if you don’t keep a minimum amount on deposit.
Certificates of Deposit (CDs) – Best for long-term savings. When you open this account you agree to leave your money untouched for a specific length of time. In return the bank offers you a higher rate of interest than on other accounts. CDs can offer terms of three months up to six years, at a locked-in interest rate. The longer your term, the higher your interest rate may be. But there is usually a sizeable penalty if you withdraw money before your CD’s maturity date.

HOW MUCH IS ENOUGH?

That’s not an easy question to answer. How many future college educations will you have to pay for? How many years will you work? How many raises can you expect? How will your housing costs change? How much will your investments return? All you can do is hope for the best, prepare for the worst, and let the power of compound interest power your savings.

That said, here are some snippets of advice from money experts:

Begin your saving strategy by building an emergency fund. It should contain enough money to cover at least three months of living expenses. It should be used only for unforeseen emergencies, and replenished as needed. That fund should also be adjusted upward as your expenses grow.
Your goal should be to accumulate a retirement nest egg that is at least 25 times your annual expenses. (Be sure to factor in the changes mentioned above. And expect to deal with higher rates of inflation and rising healthcare costs.)
The sooner you start, the more savings can grow through compounding. Try to save 25% of your gross income in your twenties.
Ideally, you should have at least one year of salary saved by the time you’re 30.
At 35, strive to have saved two times your annual salary.

It’s not as difficult as it sounds, but the key is to start young. For example, say your goal is to save $1,000,000 when you retire at age 67. Let’s assume that with a combination of savings, IRAs and 401(k)s and investments, you reap a 10% return. If you start socking away just $35 a month from age 22 to 67, you will easily hit your $1,000,000 target. But if you wait til you’re 40 to save for your million-dollar goal, you’ll need over $600 a month to achieve it.

How is your does your net worth stack up to the average millennial? thecollegeinvestor.com breaks it down for you, year by year.