If you are a millennial, you are likely facing a tough time financially. Figures show that, although your earnings on average have increased by a quarter in the last 13 years, student loan debt has more than doubled over the same time, making it much harder for those under 35 with college degrees to save money.
As a result, the amount you have set aside or invested for the future likely is much lower than the average over the last 13 years. One measure of the amount saved can be seen in your net worth, which is the value of your investments and savings minus your debts. As the infographic below shows, net worth has fallen from $20,236 on average in 2003 to -$33,984 today.
That means some millennials are so burdened with debt that their total debt is approaching the amount they earn each year. At a time when they are best able to save for their future, they are falling further and further behind in doing so.
Even high achievers have seen their net worth fall from $293,021 in 2003 to $41,518 today.
Start Saving Now
If you're not doing so already, it is essential that you start saving around 25% of your income while you're young to allow that money to build up over years until you retire. You also should build a safety net for emergencies.
The sooner you start, the better. Money invested today has time to grow over the next 30 or 40 years, meaning it will be worth a lot more at retirement than now.
You might throw up your hands in despair. You might ask, “how can I invest when I’m living paycheck to paycheck, owe a bunch of money to student loans, and my credit card debt is piling up?”
But there is hope. It is possible for you to build up your net worth steadily over the coming years by following a few steps.
Boost Your Income
Try to increase your earnings. Is there a part-time job you can do in the evenings? Is there extra work at your place of employment? Look around and you might be surprised at the possibilities.
This step is key to all you do in your financial life. Being disciplined means, for example, taking the necessary steps to save a set amount each month regardless of what is happening in your life or in your work.
It means you need to be really consistent and careful with how you use your money.
Pay Yourself First
You need to set aside money for long-term savings, the bulk of which will be your retirement savings, before you do anything else with your money. At least 25 percent, or a quarter, of your income should go into savings before you even see it. Have it deducted from your salary or other income. Budget on what is left.
Invest in Retirement Plans
First off you should max out your work retirement plan. Whatever the highest amount is that you can have deducted from your salary, go for it. Chances are, if you do, your employer will match it with a higher amount.
Additional investments toward the 25% goal could be in the form of an Independent Retirement Account (IRA), many of which have the added benefit of being tax delayed—you don’t pay taxes on the investment, but you pay them on the income from that account when you retire. You pay taxes now on a Roth IRA, but you don’t pay taxes on it in retirement.
Invest in Assets
Where should you put your money? You should invest in assets that will grow over the long term. For example, stocks have shown an average increase of 7% a year if measured over the long term. The best way to invest in stocks is through mutual funds, which are baskets of stocks set up by investment companies.
Other assets are real estate and anything else that you can be sure will gain in value over a long time.
Pay Off Your Debts
Set up a program to pay off your student loans and other debts over a set period of time. Have the payments automatically deducted from your bank account so you aren't tempted to use that money in other ways.
Make sure that the pay-off program is affordable. It makes no sense to spend so much on paying off your debt that you don’t have enough to pay for your rent and groceries.
Remember, you don’t have to erase all your debts before you start saving. You should be doing both.
Following these steps—and keeping to them in a disciplined way—will set you on the road to a higher net worth and will boost your chances of enjoying a carefree retirement.
Check out the infographic below. And thanks to College Investor for the data!
Thanks to College Investor for the data!