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Younger Workers Feel Unprepared for the Future. Here's How to Change That

By Maurie Backman - May 19, 2018 at 10:04AM

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Worried about your long-term finances? Here's a step-by-step guide to starting off on the right foot.

Making it in the real world is a daunting prospect, no matter what sort of job you're starting out with. In fact, only 12% of younger workers feel very prepared for their financial future, according to data from Intuit, while less than half feel as though they earn enough to cover the bills and save money simultaneously. If you're worried about your long-term financial health, here are a few moves you can make early on to set yourself up for success.

1. Start following a budget

The majority of Americans don't follow a budget, even though it's one of the easiest ways to track spending and identify savings opportunities. Creating a budget is easy. Just list your recurring monthly expenses, factor in one-time expenses, and compare your total costs to your take-home pay. If you're not left with a decent chunk of your paycheck to save, you're spending too much. It's that simple.

Young male adult at a laptop


2. Live below your means

Ideally, you should have enough wiggle room in your budget to sock away 15% or more of each paycheck for the future. But that may not be the case right away, especially when you're first starting out and have nagging student loan payments to deal with. Still, as a general rule, you should make sure not to spend your paycheck in its entirety month after month. Living below your means will set the stage for long-term savings so that even if you're required to start small, you'll be setting aside money consistently throughout your career.

3. Save every month for retirement -- even if it's not a whole lot

The current annual retirement plan contribution limits for workers under 50 are $18,500 for a 401(k) and $5,500 for an IRA. Clearly, you'll have to do a solid job of saving to hit either threshold, so if that doesn't seem doable at present, don't stress. Most people don't start off their careers by maxing out retirement plan contributions, and if you begin by saving just a few hundred dollars a month with the intention of ramping up over time, you stand to accumulate a pretty sizable nest egg.

How much cash are we talking? Imagine you're 22 years old with a 45-year career ahead of you. Let's say you manage to save $200 a month for your first 10 years on the job, $300 a month during your next 10 years, and then $500 a month from that point forward. If you invest that money at an average annual 7% return (more on that shortly), you'll wind up with $1 million in time for retirement. And that's certainly a respectable sum.

4. Invest your savings wisely

In the above example, investing a total of $210,000 at an average annual 7% return resulted in a nest egg of over $1 million, and all thanks to the power of compounding. But to get somewhere in the ballpark of that 7% return, you'll need to invest heavily in stocks -- something most Americans aren't willing to do for fear of losing money. The problem, though, is that because the bulk of savers invest too conservatively, they end up missing out on key growth that could work wonders for their retirement.

Imagine that instead of snagging the 7% return we applied above, you stick to safer investments and therefore only land an average annual 3% return. In that case, you'd be looking at about $383,000 at the end of your savings window rather than $1 million.

The beauty of being young is having ample time to ride out the stock market's ups and downs, so don't let your fear of losing money stop you from growing your wealth. If history tells us anything, it's that the stock market tends to reward long-term investors, which paints a much brighter picture for your future.

It's natural to feel uneasy about the future when you're younger and are working with a limited income and mountains of bills. But if you follow the above steps, you'll increase your chances of securing the financially comfortable future you deserve.

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