Millennial’s Guide to Saving for Long-Term Wealth
Millennial’s Guide to Saving for Long-Term Wealth
The demographic cohort known as the millennial generation refers to those typically born between 1981 and 1996. Also known as Gen Y, this group is often misunderstood where money is concerned. While this assumption may hint to some truth, there are certainly economic influences at play and the millennial generation is far from failing financially. For example, while homeownership rates among millennials have lagged when compared to previous generations, in Southern California, this is due largely in part to soaring home prices and lack of inventory. And despite battling increased costs of living and large amounts of student debt, this generation has started to prioritize key areas of wealth and is on its way to being a financially thriving generation. In fact, research shows that even with significant long-term debt, much of which comes from the pursuit of higher education, 44% of millennials have at least a bachelor’s degree and 28% already have investment portfolios. Both of these accomplishments are a good foundation for a successful financial future. Here are a few activities to help develop more structure for long-term wealth.
Consider Share Certificates/Certificates of Deposit
It’s great to have a nest egg and an emergency fund set aside in a standard savings account, but when you’re looking to earn more than minimal interest, it’s important to consider other savings vehicles. A Share Certificate, also known as Certificate of Deposit or CD, is another type of savings account that provides more return on your money than a standard savings account. This is a great option to steadily grow your savings if you don’t need immediate access to the money. Certificates have fixed interest rates and fixed term lengths during which you cannot withdraw money without a penalty. Terms can be from a few months to a few years. The longer the term length, usually the greater the interest rate you’ll earn.
Contribute to Retirement Accounts Early
You may have the dream of retiring early, but have failed to start planning for this goal. Now is the time to take control of your finances and turn your dream into a reality. For starters, you should be contributing into a retirement account, such as a 401(k) or 403(b) plan. Many people skip retirement contributions in favor of having a little more take-home pay in their paychecks, but opting for this instant gratification can hurt you in the long run. When it comes to saving for retirement, the more time you have on your side, the better. Even if you can only commit to setting aside a small amount out of each paycheck, make the commitment to do so. Some employers even match employee contributions up to a certain percentage. Definitely take advantage of this if your employer offers it. By not contributing to at least the match amount, you are essentially leaving money on the table! Do some research on your plan in order to identify how much you can contribute, then set up the contribution and just let it grow.
Regardless if you have a 401(k) or not, millennials should also expand their retirement investment options and look to open an Individual Retirement Account (IRA). Whether it’s a Roth or Traditional IRA, there are tax benefits for both, and by allowing your contributions to compound over time, you will set yourself up to be better prepared for retirement. Thirty years from now you don’t want the realization that you haven’t saved enough money for retirement. The longer you wait, the harder it will be to meet your retirement goal. For more info on IRAs and tips on deciding what options may be best for you, visit our How to Choose the Right Retirement Account for You blog.
Millennials are the first generation to grow up with smartphones, tablets and applications to help accomplish almost anything! Now more than ever, millennials should consider using technology to achieve financial stability and save money.
The stock market can be intimidating, especially for those who know nothing about investing. However, the tech innovations in today’s world allows for an everyday consumer to manage their own investments and save some money. Many apps are available that allow beginners to be their own stockbroker, while other apps include an opportunity to round up your purchases and then invest the difference. There are apps that can prove to be helpful for saving and allow you to customize saving money towards a specific goal. Getting creative and adjusting with the times and trends will help you achieve your goals. There are many different apps out there which can get overwhelming. Make sure to do your own research, including reading reviews, for which app will suit you best.
Buy a Home
Let’s first acknowledge that saving for and buying a home in Southern California can be challenging. However, owning a home and allowing your property to build equity over time is an excellent way to build long-term wealth. Saving for the down payment on a home purchase can be the most difficult part. Below are a few tips to get you started:
Eliminate debt – Debt is one of the biggest factors preventing millennials from buying a home. In order to get the right loan with the best terms, try to reduce or eliminate other debts you may have such as auto, credit card or student loan debt.
Save for a down payment – A strong down payment of 20% or more allows you to avoid PMI (private mortgage insurance). Saving might be the hardest part but make sure to stay the course. Automating your savings, cutting down on discretionary spending and finding other income opportunities can help grow your savings. The first step is creating a budget, including your income and expenses and then seeing where you can make cuts. See our Four Ways to Kick Start Your Savings blog for more ideas.
Maintain good credit – Having good credit can potentially save you thousands in interest charges and allow you to qualify for a more competitive mortgage rate. Monitor your credit at annualcreditreport.com and make sure it’s in good standing leading up to your home purchase. Our Five Ways to Jumpstart Your Credit Score blog explains this more in depth.
Buying a home is most likely the biggest purchase you’ll make and it can also be the smartest financial decision you make. You can benefit from tax breaks, the equity in your home and even No Closing Costs Adjustable Rate Mortgage
Saving money for long-term wealth is not an easy task and for millennials, it might feel like it’s nearly impossible. In order to begin saving money like a pro and feel confident in the financial decisions you’re making, don’t hesitate to reach out for extra help. SDCCU offers options for Savings Accounts, Certificate Accounts and even Retirement Accounts to help you start your journey towards building your savings.
Visit our Financial Knowledge Blog to learn more tips on setting up a solid financial future or join us for Financial Wellness Wednesdays.