Saving is a habit best created early in life, and one that is absolutely necessary to someday put money down on a mortgage or retire comfortably. Millennials have more incentive than previous generations to start saving initially, but many don't know where or when to begin. The following tips can help you start saving, and get you on your way to your first home:
1. Live below your means
This may seem obvious, but many mature adults still need to learn how to live by this rule. In pretty much every instance, living with roommates can significantly lower your rent. Splitting the rent several ways can also typically get you more bang for your buck in terms of apartment space and quality for a more affordable price.
"Only about one-third of Americans are living within their means,"
"Only about one-third of Americans are living within their means," said Stephen Brobeck, executive director of the Consumer Federation of America, according to CNBC. Brobeck went on to add that another third of the population is either struggling to live within their means, or managing their lifestyles but with no future savings plan.
While it can be easy to splurge and buy that brand new 70-inch flat-screen TV in time for football season, only purchase for pleasure if it's within your budget. Recognizing and living at or below your means can have extremely positive outcomes - and provide a large nest egg - later in your life.
2. The 10 percent rule
Pay yourself first. According to Forbes contributor Samantha Sharf, a person in their 20s should initiate the process of saving by following the 10 percent rule. You should attempt to save 10 percent of your annual income, in addition to whatever your employer is willing to match in a 401(k) or other savings plan. Saving at least the minimum requirement to qualify for your employer's matching program is commonly known as "free money."
The good news so far is that most millennials seem to be aware that they are going to be responsible for their post-retirement nest egg, and they wisely want their employers to help. According to the T. Rowe Price study via USA Today, the median contribution rate at which millennials said they would drop out of their employer's 401(k) plan was 6 percent - more than double the current average default rate. A whopping 27 percent said that they would drop out over 10 percent.
3. Emergency fund
According to a study from Bankrate, only 38 percent of millennials say they have enough money saved to be able to pay for emergency expenses over $1,000. If a serious injury occurs or your car breaks down, the expense could run you quite close to the red.Having an emergency fund ready is absolutely essential, according to Time Money. An emergency - such as job loss - could be financially devastating if you can't even afford to pay next month's rent. Debt resulting from necessary short-term loans could could ultimately impact your mortgage savings plan. Be smart and stash some cash in a small savings account for a rainy day, just in case the worst should happen.
4. Don't wait
Perhaps the most important financial tip young people should adhere to is to begin putting money in their savings jar as soon as possible. It can be tempting to put this off - especially for millennials bogged down with student debt. However, U.S. News and World Report Money highly recommends not only paying back your student loans as early as possible, but also taking advantage of any employer-provided savings programs as soon as they become available.
If an employer offers a 401(k) - be sure to take advantage of it from the start. The day when you'll have that "extra money" might never come, and if you're not careful, you'll find yourself well on your way to retirement with no accumulated funds to apply. Small savings add up, and even if you can put away 2 percent of your income - do it. It will only be a matter of time before 2 percent becomes 4, and then 10 percent, according to U.S. News Money.
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For more information about smart ways to manage your finances, contact Landmark Bank.