youíre in your 20s or 30s thereís a strong chance
that you are getting puny paychecks that never seem to
stretch far enough, and you may look at everything your
baby boomer parents have and wonder if youíll ever
that doesnít mean youíre going to feel poor forever.
a generation, millennials are earning 20 percent less
than baby boomers were making in their late 20s and
early 30s, according to a recent analysis of federal
data by Young Invincibles. And todayís 25- to
34-year-olds have only half the wealth that baby boomers
had at the same age. In other words, todayís young
adults have less savings, fewer homes, cars, businesses
and other assets, plus much more student loan debt.
millennials can build their wealth, even though they may
be starting with less, if they are intentional about
handling money. With less pay, and the likelihood that
it wonít escalate the way baby boomersí did over
time, todayís young adults donít have the cushion to
be sloppy about money decisions.
Many baby boomers werenít great savers. About 43
percent are not going to have enough money for
retirement, according to the Center for Retirement
Research. But millennials ó since they are coming from
behind ó will be especially vulnerable if they donít
start saving for the future in their first jobs.
the wealth baby boomers have accumulated as a
generation, too many missed the golden opportunity
people have in their 20s. Boomers would be on their way
to having $1 million for retirement if theyíd simply
put $25 a week into a stock market index fund in their
401(k) at work or an IRA retirement savings account
starting with their first job, and kept it up.
most millennials donít realize that if they wait until
their 30s or 40s to begin saving, theyíll have much
less in retirement. A person who skips saving $25 a week
on the first job, and waits until 35 to start, will need
to save more than $100 a week to end up with $1 million.
That assumes a stock market index mutual fund investment
averaging 10 percent a year. Notice $1 million isnít
as huge as you might think. In retirement it will
provide just $40,000 a year to cover living expenses.
McClellan, 25, and a financial analyst for the American
Association of Individual Investors, worries about her
millennial peers. They donít think they can save
because they have student loans, and they "say
their paperwork for 401(k)s is too confusing," she
said. "But thatís not an excuse."
you are 23 years old and make $50,000 a year," she
says. "If you save 10 percent of your salary that
year in a retirement account, you will be saving $5,000.
And by the time you retire in 42 years, that $5,000 will
become $85,721 if your money grows at 7 percent
annually, which is not unreasonable to expect in a total
stock market index fund. That $85,721 isnít fake. You
wouldnít have it if you didnít save at 23."
planners urge millennials to save 10 percent a year for
retirement, starting with their first job. "If you
do it automatically and never see it, you donít miss
it," said McClellan. Yet, if you are terrified
about 10 percent, start smaller but donít miss a penny
of the free money your employer will give you if you put
money into a 401(k) at work. Often if you put 3 percent
of your pay in the retirement plan, your employer will
match it. In total, you will be saving 6 percent of pay.
Then write yourself a note on the calendar to
re-evaluate in six months. If you are paying your bills
and having some fun, go to your 401(k) website or
benefits office and start contributing 4 percent of pay.
Keep upping the percentage every few months, especially
as you get raises.
saving is a requirement; just like paying rent or
utilities. When you save only whatís left over those
leftovers never appear, even if your income is high.
Baby boomers made the error of waiting for leftovers.
about where to invest your savings? Choose one of the
retirement funds set up specifically for someone
retiring around the same time you plan to retire, or ask
for whatís known as a "balanced fund." If
you donít have a 401(k), go to a low-cost mutual fund
company like Vanguard, Fidelity or T. Rowe Price, open
an IRA and route money from every paycheck there.
cars. Although some millennials have caught on to the
way car payments, insurance, gasoline, licenses and
repairs and tires can drain away paychecks, others make
the mistake of paying too much for cars and leaving
themselves no money each month to save.
may need a car for transportation, but cut back on the
dream car if payments will consume so much of your pay
that you canít cover housing costs, food, insurance,
clothes, utilities, other necessities and routine
make sure you consider the total cost of your car ó
monthly payments on the loan, plus the extras like car
insurance and gas. As a rule of thumb, keep monthly
car-related costs to no more than 10 percent of your
monthly gross income. This calculator will help you
envision the entire package of costs www.edmunds.com/tco.html
and this will give you an idea about what you can afford
extend the length of your loan so you can make monthly
payments affordable. Keep the loan to five years so you
arenít stuck making payments when the car is old,
needs costly repairs, and itís time to buy a new one.
or buying a house. After the housing crash and Great
Recession of 2008, millennials are skeptical of buying
homes as an investment. They realize, correctly, that
homes do not always increase in value, although over
many years they have appreciated slightly ó a little
over a third of a percentage point ó over the rate of
inflation, according to economist Robert Shiller.
whether a person buys a home or rents a home, keeping
monthly payments on a 30-year fixed rate mortgage within
a manageable level is crucial. The rule of thumb is to
spend no more than 28 percent of your monthly gross
income each month. This calculator will help: http://money.usnews.com/money/personal-finance/articles/2012/03/29/are-you-in-over-your-head
within the 28 percent limit is especially important if
renting because you wonít be building up any equity
the way you may if you buy a home. To decide whether to
buy or rent, try this calculator: www.calcxml.com/calculators/rent-vs-buy-home