Money Advice for Millennials: How to Save for the (Not So) Distant Future
Saving for the future isn’t easy. Think about setting money aside for a beach trip during the dead of winter, when you could be snowboarding this weekend. If you are like most, having sand between your toes next summer isn’t nearly as tempting as shredding the slopes today. Our preference for living in the present is so well documented economists gave it a name: hyperbolic discounting. Simply, we have a very hard time valuing future experiences.
Yet studies find valuing the future is exactly what we need to do, particularly when it comes to reaching financial goals. One recent study is the 2014 Wells Fargo Millennial Study (here). This report found Millennials understand their retirement will look different than their parents, yet only half have started saving.
The good news is Millennials have time on their side. Below are three recommendations for someone just getting started:
1. Create a Budget. Whether you use Excel, the back of an envelope or colorful sidewalk chalk, just write it down. Make a list of your monthly expenses and subtract those costs from your monthly income. Knowing where your money is and where it is going is half the battle.
2. Save 10%. Adopt a lifestyle that creates “extra” cash. Money saving tips abound, from getting a roommate, to buying used cars (rather than new), and more meals at home. Find ways to be content living below your income. As nationally syndicated financial advisor Dave Ramsey says, “if you will live like no one else, later you can live like no one else.”
3. Invest. The best, and some would say only, way to reach long-term financial goals is to invest in the market. Every financial planner will have an opinion on the mix of mutual funds, so find one if you feel the need. The most important thing is to put your money in the market where it can compound. And leave it there for compounding to do its magic.
Money is like any other habit, and habits can change. Keep in mind the rule of thumb: 30 days to create a new routine; a very brief time when compared to a lifetime of monthly income. Start now and you will have the financial means to enjoy yourself later.
Thanks for reading. Comments and suggestions for other topics welcome.
On behavior, my review of Duhigg’s bestseller, “The Power of Habit: Why We Do What We Do in Life and Business” here. My review of “Nudge” co-author, Richard Thaler’s latest, “Misbehaving: The Making of Behavioral Economics” here.
On money, my review of Ric Edelman’s bestseller, “The Truth About Money: Everything You Need to Know About Money” is here. My review of John Bogle, the co-founder of Vanguard, book, “The Clash of Cultures: Investment vs. Speculation” here. A review of Lars Kroijer’s, “Money Mavericks: Confessions of a Hedge Fund Manager” here. Also, a personal story on bank fees here.
I write about health, money, behavior and other (mostly) related topics. On LinkedIn and Medium.
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