When it comes to saving, millennials have a tough road ahead. If you're a recent grad, you're facing wages an average of 5.4% lower than those in 2000, and full-time work is scarce. According to The New York Times, only 36% of Americans ages 16-24 are employed 40 hours a week. Under these circumstances, making rent can be hard, let alone putting money aside for your future. Luckily, saving isn't impossible, as long as you stick to a plan.
Priority 1: Take care of your student loans
With student loan debt totaling a whopping $1.1 trillion earlier this year, many recent grads aren't sure how to make payments. Consider all your repayment options, including checking whether it'd help to consolidate your student loans. Doing that might give you access to alternative repayment plans, but there also can be drawbacks, so make sure you do all your homework before consolidating anything.
If you're working a low-paying job, you might also qualify for an Income-Based Repayment Plan, or IBR, through the U.S. Department of Education. Under this plan, you'd be required to pay 15% of your discretionary income toward student loans, which might be less than other repayment plans. Note that you'll need to reapply every year to stay eligible.
Priority 2: Pay off your credit card debt if you owe more than $5,000
Some experts suggest building up an emergency fund first. But if you have credit card debt, carrying a balance will cost you a lot in interest. It's important to pay off your credit card debt if you owe more than $5,000. You also should negotiate with your credit card company to lower the interest rate on your card(s). Call them up and see what they can do for you.
Priority 3: Build an emergency fund
If you have less than $5,000 in credit card debt, you should start setting money aside for emergencies; most experts agree on three to six months' income. If you make $1,000 a month, for instance, your target should be $3,000 to $6,000.
Open a savings account with your current bank and sign up for automatic payments that move a designated amount from your checking account to your savings account each month. Even if you can afford only a small amount, starting the habit will serve you well in the future. If you can't save on a regular basis, consider depositing your next tax refund into a savings account instead.
Priority 4: Get the 401(k) match and open a Roth IRA
Once you have your debt under control and have started an emergency fund, you can begin saving for retirement. If your employer offers a 401(k) and matches a certain percentage of your salary, grab it! That's free money you can't afford to miss out on.
If your employer doesn't offer a 401(k) plan, you can open a Roth IRA. For low-wage workers, that's better than a traditional IRA, since you pay taxes upfront, when your tax rate is lower than it should be in retirement. Set up automatic payments from your checking account. If you can contribute even a little to both a 401(k) and a Roth IRA, great! The money millennials put into their retirement accounts today has more time to grow and accumulate interest.
Don't forget to budget
Stay on track with your financial goals by being proactive about saving. Brown-bag your lunch, buy a cheap phone and use fewer minutes, buy second-hand clothes, and take fewer trips to save on gas, for instance. Maximize your savings by looking at your situation honestly and considering what extras you can and can't afford. Eating out less might not seem to save you much week-to-week, but in the long haul, small changes can make a big difference.
If, next, you feel like you're reading to start investing some of your money, be sure to look for a good broker to get started. Keep in mind that many require a minimum initial balance, or may have annual account fees, so be sure to read over the details. Some brokers will allow offer promotions where you can trade stocks for free, so while that is also something to consider, keep in mind the promotion has an end date, so make sure you're comfortable with all the terms on your account.
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