How difficult is it for Millenials to start saving?
How difficult is it for millennials to start saving? Pretty difficult. It can be particularly hard for a millennial (or anyone, really) to offset all these expenditures with only one income.
But the good part is that it can be achieved and getting your money life together is the first step.
Step 1. Create a budget
The first step to gaining control of your finances is by making a budget. A budget is like a blueprint for your financial future. Imagine trying to build a house without a blueprint: How would the builders know what to do? It’s the same for your financial planning.
To create a budget, you need to estimate your cash flow. Ask yourself: How much money do you have coming in and how much money do you have going out? Take a long look at the money you have left over. That’s what you need to allocate toward saving, investing and spending on the things you want to do in life.
Step 2. Spend wisely
You’re responsible for making the right money decisions. It’s important to keep track of where your money is going on a regular basis and figure out if you’re paying for things you no longer need – such as unused cable TV service, magazine subscriptions and inactive memberships. Be honest with yourself and get rid of the unnecessary expenses that are eating into your savings.
Next, try to negotiate better rates for the expenses you still have. For example, you can call your cell phone service provider and ask for a discount, or switch to another carrier which offers a more competitive plan. In addition, keep an eye on promotions and new plans. Based on the average experience, you’re likely paying more than you need to for at least one service.
Once you trim your expenses, work on spending wisely. Every purchase matters, no matter how big or small it is. Think about the financial consequences of each discretionary purchase you make. Ask yourself: “How badly do I need this item? What am I willing to give up to buy it?”
Keep in mind, every dollar you spend now is one less dollar you’ll have in the future. You may choose to splurge occasionally, but try to stay on track with your budget for spending, saving and investing.
Step 3. Make sure you stay on target
When creating a budget, it helps to know where and how much you are spending. Here are some guidelines for your expenses:
- Housing. This is typically your single largest expense, whether you rent or own. In general, spend no more than 30% of your gross income on rent (no more than 28% is better), and no more than 28% if you have a mortgage. If housing is really pricey where you live, you might want to consider other alternatives, such as a roommate.
- Total monthly debt. Keep your combined housing costs and debt payments (student loan, car loan, minimum credit card payment, etc.) below 43% of your income (36% is better if you can handle it).
- Student loans. Spend between 10% and 20% of your income on student loan payments. Be sure to take advantage of any student loan repayment benefits.
- Car expenses. Spend between 10% and 20% of your income on auto expenses, including car payments, gas, insurance and maintenance.
- Retirement. As the saying goes, “Pay yourself first.” Set aside 10% to 15% of your income for retirement each month, and you should start as early as you can.
Step 4. Plan for big expenses
Budgeting helps you balance your regular income and expenditures, but there may come a time when you want to save for a big, one-time expense, such as a vacation or a wedding. There’s nothing wrong with buying things that you’ll love to use. But it helps to make a plan.
To get started, set a dollar goal and a deadline, and then determine how much you need to save each month to make it happen.
Of course, the bigger the expense, the further out your timeline is likely to be, but no matter how big (or small) the expense is, the key is to set a goal, make a plan – and make it happen.