As of July 1, 2019 the Millennial Generation consisted of around 72.1 million adults, equating around 22% of the United States population. Of these adults, many have been taught saving for retirement is a matter of investment and time, yet they refrain from taking the steps to do so. A number of fears hover in the air. Never being able to retire and outliving retirement savings are prominent examples.
To some, saving money is considered a luxury after paying for rent, bills, student loans, utilities and other necessities. Student loan debt alone could haunt a millennial well into their working lives, hindering the ability to save. While those with fruitful jobs are crushing their debt left and right, others without proper wages and guidance fall behind to stress over their payments. It’s come to our attention older generations have typically invested in stocks in the past, while newer generations are sticking to cash as their long-term investments.
When a millennial prefers to hang on tight to cash, they may be unaware of how investing could boost their chances to crush their debt and prepare for their later years. Younger generations are sleeping with one eye open in terms of their finances, but investment guides such as these could help them rest a little easier.
Investment Contributions Compound Over Time
Many millennials may not comprehend the benefits of investing, and the amount of financial growth which can compound over time. The years during one’s mid-twenties to mid-thirties can prove to be very lucrative if finances are invested properly. It all depends on long term and short term goals. The stock market is notorious for volatility, but when it is down it doesn’t stay down for long. Ups and downs are part of investing, and returns are unobtainable without risk. A savings account can only do so much for a millennial as interest is earned at a snail’s pace. In the long run, stock investments are going to give a millennial the most “bang for their buck” as it creates a snowball effect.
For example, if you invested $6,000 at 25 years old, then earned $100 in interest that year, you would be investing $6,100 the following year. Year after year, that interest gained will compound into a potentially larger nest egg than simply saving your cash. Assuming the market will perform at a yearly average rate of 7%, a young investor will position themselves to gain a much larger return on their investment, also allowing adjustments to inflation.
If you’re young, ready to invest, but feel surrounded by debt, you are not alone. The first thing to do is take a step back, evaluate your current situation, then construct a goal from there. Many young investors have begun their working lives with a modest income, loans and bills. At this point writing down your net income is a great starting point. Typically, a young investor will be paying:
- Student loans
- Auto loans
- Credit card payments
- Utility bills
- Occasional medical bills
Either use the debt avalanche method and pay off high-interest debt first. Or, use the debt snowball method and pay off your smallest amount of debt first. Paying off small chunks at a time could help you feel more accomplished and motivated to continue on your investment journey with optimism.
Once you have figured out how much money you have left over each month, think of how you can factor the leftover cash into investments.
Where will your investment funds come from?
Ask yourself a few questions. Will you be pulling funds from your savings account? Checking account? What if you can only invest periodically?
Many companies require a minimum initial investment to get you started. Companies could require a minimum of $1,000 to $3,000 for their mutual funds. Depending on your goals, your approach to investing will vary.
Contributions from company-sponsored 401(k) accounts are typically around 10% of your gross salary. However, never forget a 401(k) or any other investment account will need routine check ups.
If you have an IRA account, the 2020 yearly contribution cap is $6,000. Which means contributions of around $500 a month could put you, as an individual investor, in a comfortable spot in the long-run. However if you cannot hit the $6,000 mark, don’t worry. A contribution is still a contribution, and some money invested is always better than none.
Once your money is placed in a setting where it can compound and aim to generate goal-based returns, expand and thrive the results will be potentially greater than tucking your money away and never letting it see the light of day.
Investments can do great things for your future and better help you prepare for your retirement years.