Millennial Money: 3 Saving strategies for millennials
Millennial money is a term we are starting to see thrown around in finance these days, and for good reason. As a career-focused millennial, chances are that you consider your retirement and career trajectory differently than your parents did. Independence and pursuing your ambitions is more important to you than working your way through the same firm for 40 years. Youth is valuable and focusing on saving the good times for retirement may not align with your current ambitions.
There is nothing wrong with that. We now live in a time where it is more possible than ever to explore your ambitions and stretch the limits of your capabilities. Breaking the mold is a possibility and can have wonderful outcomes for your life. However, it is important to recognize that in breaking the molds surrounding your career, you are also breaking the mold in some other areas. As a result, recognizing that traditional patterns of long-term financial planning do not apply to your lifestyle as well as they would have in the past is crucial to living a long and prosperous life. Especially now that we are living so long that our longevity poses a risk to our savings.
Whereas older generations could focus on growing through the firm, loading up their RRSP, investing in property and retiring relying on a significant pension , these options may not be available to younger generations with more modern career paths.
I’ve outlined three basic savings strategies to be aware of for millennials in considering retirement.
Automate your savings and make it a routine
Make savings a priority in your life. Online banking can automate RRSP and TFSA contributions and speaking with your employer can ensure that you are contributing a solid amount every month. Using personal finance apps like Mint to track all of your expenses will help you lock down your most unnecessary spending habits. Use your gift for technology to maximize your wealth.
Older generation’s career paths made their retirement saving much more straightforward. By working for the same firm for 40 years, it is possible for individuals to rack up a significant pension that can be relied upon in retirement. While these options might not fit your long-term objectives, you can work around it.
If you foresee your ambition guiding you to different firms or industries, it will be important to consider focusing more on personal savings. If you start regularly saving early and focus on maxing out RRSP contributions and TFSA limits, retirement becomes a breeze. This requires planning and coordination, but it is doable. Routine contributions directly from your online banking and monitoring your budget through Mint will help you maximize your savings.
Focusing on your personal saving will pay you dividends as you approach retirement late in life. Coming up with a strong budget that fits your lifestyle, avoiding lifestyle creep, and tracking your net worth will give you the tools you need to ensure that you are saving as well as you need to.
Maximize your savings by choosing carefully between renting or buying a home
As real estate prices continue to rise globally, in many cities owning property is becoming increasingly difficult. Traditionally, owning a house has been a sure-fire investment that can be relied upon in retirement. If the house is owned, you have equity and you are on the hook for nothing. For many career-driven millennials, looking to live in larger cities like Toronto or Vancouver, owning property is becoming more difficult.
This does not mean that you are out of the race. Simply, it means that you need to focus on saving in other areas of your life.
This rent or buy calculator from the NY Times does a great job explaining demonstrating the situations in which it is better to rent or to buy.
There are a couple of key points to consider in choosing to rent or buy. Your personal risk profile is one – are you comfortable and secure enough in your job to secure a long-term mortgage? Do you believe that the market will continue to appreciate year over year? Are you confident in your ability to save excess money left over from your rent?
Another is to consider the trade offs in your lifestyle if you choose between renting or buying. Buying a home ensures that you are locked into a long-term debt. This can limit your ability to travel and your ability to take on risks like starting a new venture or investing in a start-up. If your passion includes flexibility in your cash flows, owning a home may not be the best call.
Real estate is something that is a major area of concern for many millennials looking to save but it does not have to be. Review your assumptions and determine a retirement savings strategy that best works for you, your lifestyle and your career. Again, bring in technology to help you. Online calculators and forums like Reddit’s personal finance section can give you a great level of analysis into what is best for your circumstances. Of course, speaking with a financial advisor as well can give you the CFO experience that will give you the ultimate peace of mind as well.
Crush your debt early
Of course, avoiding debt is advice for any person looking to save, but in the case of millennials, we are seeing higher debt loads earlier in life. As student loan rates have gone up year over year, it is increasingly common to see young professionals with high debt loads. This is something that older generations did not have to focus so much on, but it definitely will change the retirement savings structure for younger generations.
Avoiding debt is crucial to ensuring savings objectives are met. A high debt load will reduce your income dramatically and slow down your plans to protect your wealth for the future.
Focus on paying down your debt as quickly as possible. Highest interest debt should go first, regardless of the amount. Avoiding other debt loads like car payments until at least the larger loans are paid off will help retirement savings down the line as well. It’s a great excuse to get fit and bike to work anyways!
Not only does avoiding debt allow you to save more money, it also gives your life more flexibility. You can travel more and afford to take more personal risks if you do not have heavy debt sitting over your head.
Save for the long term, even if you live in the short term
In all, all of these saving strategies focus on the long term. You can live any kind of lifestyle you want in the short term, but as long as your long-term objectives are kept front and centre in your mind, you will succeed.
Thanks for reading!
If anything on this blog interests you further, please do not hesitate to reach out to me via email at [email protected] I’d love to talk about my financial services and advice in Vancouver, British Columbia’s lower mainland, and Canada in general.
- Brad Blair, CFP, CIM, FCSI, CHS.