When it comes to being financially responsible, millennials tend to get a bad rap. But while younger adults are purported to spend down their paychecks on luxuries like rideshares, fancy coffee, and avocado toast, in reality, they're actually socking away a respectable amount of money for their golden years.
An estimated 58% of millennials are saving for retirement in either an IRA or 401(k) plan, according to LendEDU. Furthermore, the average millennial has around $26,475 saved for retirement -- not too shabby, especially for those on the younger end of the millennial spectrum.
If you're among the majority of younger adults who are setting funds aside for retirement, you deserve a pat on the back. And if not, it's time to rethink your financial habits -- before you find yourself in your 40s or beyond without a dime socked away for the future.
Prioritizing your retirement savings
It's hard to focus on retirement when it's such a far-off milestone. But if you don't start socking away funds when you're relatively young, you might struggle to catch up when you're older.
Imagine you're able to set aside $400 a month over a 40-year period. If your investments were to generate an average annual 7% return during that time, which is more than doable with a stock-heavy portfolio, you'd wind up with about $958,000. On the other hand, if you only give yourself a 20-year window to save for your golden years, you'll need to sock away $1,950 a month to wind up with a similar retirement plan balance (assuming that same 7% return). And unless you're a particularly high earner, that might prove quite challenging.
A better bet, therefore, is to save consistently during your working years so that you're not scrambling to play catch-up later in life. To this end, it pays to examine your budget and figure out where you have room to cut corners and bank some extra cash on a regular basis. You might, for example, save yourself $400 a month by downsizing to a smaller apartment or moving to a less trendy neighborhood. Or, you might achieve the same goal by reducing the amount you spend on luxuries like rideshares, restaurant meals, and takeout.
If, after going through your budget, you really can't identify a reasonable means of freeing up cash, you may need to consider getting yourself a side hustle. These days, you can turn just about any hobby into a moneymaking opportunity, whether it's writing, graphic design, crafting, baking, or animal care. And most side jobs these days are flexible -- you can work them into your schedule when you can, and then use your earnings to meet financial goals like funding a retirement plan. In fact, it pays to get yourself a side gig even if you are able to reduce your monthly spending. The more you're able to contribute to your IRA or 401(k), the more financial security you'll buy your future self.
Remember, you should, ideally, be setting aside 15% to 20% of each paycheck (if not more) for the future. If that's not feasible, at least not at this stage of life, then do the best you can. Just don't make the mistake of waiting to fund a nest egg, because if you do, you might really struggle to compensate later in life. Instead, take a lesson from the 58% of millennials who are diligently setting aside funds for their golden years and start making smart choices for your retirement.