Why Millennials Should Be Saving For Their Future

We’ve all heard it before, whether it’s from our parents, grandparents, spouses, or friends. “You should be saving for your future.” This is great advice. However, it often leads to a couple of unanswered questions. What are the best ways to save? What are the top priorities we should be saving for? Should I be using a savings account or look at investing?

To answer these important questions and to truly understand how to best begin saving for your future, we sat down with Tyler Daly, Heartland Bank’s Financial Advisor through Raymond James.

Q1: How does a millennial that has just finished college and entered the work force begin prioritizing on what to save for? 

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Tyler: First and foremost, the priority needs to be on creating a budget and current cash flow. If you struggle to keep bills manageable and pay for basic necessities, a conversation about retirement will be meaningless. Spending money has never been easier than it is today, whether you’re swiping a credit card or using Apple Pay. Because of that, we need to remain diligent to control that aspect of our finances.

Once a basic budget is in place, we usually look at an order of operations for investing. The first step is to seek out a 401(k) or retirement plan at your place of work. Many companies provide some sort of investment matching opportunity that essentially gives the employee a “free” bonus by doing nothing more than putting money away for retirement.

After a reasonable amount is being set aside for the long term, we then look for medium term needs, such as a home purchase, college savings plan if you have children, or a nest egg for personal needs (i.e. business purchase, travel expenses, etc.).

Q2: In your opinion, what are the top priorities we should be saving for?

Tyler: The top priority, in my opinion, is retirement. We’ve all heard the concern over Social Security’s long-term viability, and I think it is foolish as a millennial to assume that program will be around in its current state to take care of us during our retirement years. Quite simply, I believe that there will need to be significant assets set aside to supplement, if not single-handedly fund a retirement plan. As health care technology improves, so will our life expectancy, which will put an even greater strain on our finances later in life.

Q3: Although retirement and a home are often topics that are brought up when talking about saving, could you tell us a little more about the importance of also establishing an emergency fund?

Tyler: Emergency funds are arguably one of the least talked about, yet most important, aspects of a responsible savings plan. The days of going to work for a company and retiring after 30 years with a pension and a gold watch are over. According to the Wall Street Journal, the average person changes their career nearly 10 times over their working life. That type of turnover and uncertainty makes an emergency fund vital. When people are in between jobs, their bills continue to pile up, and a wise saver has enough in a liquid account, i.e. Savings account or CD, to cover two-three months of those costs without going into debt just to survive.

Q4: It’s tough to put away money for your retirement when you won’t see the rewards for years to come. How does a millennial balance saving for the future with the immediate needs and wants they have right now?

Tyler: Millennials get a bad rap for being an “Instant Gratification” generation, but I’d argue that all humans can fall into that classification. Millennials however, have simply grown up in a time where information is at their fingertips and they expect things to happen much more quickly because of it. Consequently, prioritizing for a retirement four decades or more down the road can be a challenge.

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Psychology plays a huge role in long term saving. Even the most disciplined investor can struggle with spending when there is money in a checking account. This is why taking advantage of a company’s 401(k) plan is so valuable since the money is withdrawn before a paycheck is received. This creates an illusion that you never received the money so it won’t be missed and makes it easier to save.

Q5: How should someone decide whether to pay off debt, such as student loans or a car loan, or put more away for their retirement or investment accounts?

Tyler: There are many different schools of thought on this subject and again, psychology plays a large role. Not all debt should be considered “bad.” Mortgages, business loans, and debt on income producing or appreciating assets aren’t in the same category as credit cards and car loans. The latter should be paid off as soon as possible and should take a higher priority than an investment account because of the very high interest rates being charged. Unfortunately, student loans have been creeping into the “bad” debt category due to the recent rise in their rates when they were once nearly interest free and could be paid off over a long period of time.

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A good rule of thumb is that if the debt is charging a higher interest rate than the expected rate of return on the investment, then paying off that debt should be the highest priority. However, if the roles are switched and the interest is lower than the expected return, on a mortgage for example, then it’s better to focus on investing rather than depleting your cash reserves by aggressively paying off a low interest home loan.

Q6: What final advice would you give to any millennials that are just beginning to save for their future?

Tyler: In my opinion, the biggest advantage a millennial has is the access to information that previous generations didn’t have. There are dozens of websites and podcasts geared toward new investors that can explain the subjects of finance and the markets in great detail while also making it easy to understand. Having a baseline understanding of how money and markets work simplifies the process of prioritizing where your dollars are invested.

Finally, time is always of the essence. To accumulate $1 million by the time you reach 65 years of age, assuming a 7% annual return, you need to save $381/month if you start at the age of 25. However, if you wait until you’re 55 to start saving you’ll need $5,778/month to reach that goal. Saving early and often can have a monumental impact on your financial situation down the road.

*This is a hypothetical example for illustration purposes only and does not represent an actual investment.

If you have any additional questions or would like to speak with Tyler Daly about saving and investing options, feel free to give us a call at 800-749-3119 or stop by your local Heartland Bank branch.

*Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC are not deposits or bank guaranteed, not insured by FDIC or any other governmental agency, and are subject to risks and may lose value. Raymond James is not affiliated with Heartland Bank.*

Jameon Rush

Heartland Bank is a family-owned bank located in 13 different communities across the heart of Nebraska. Heartland Bank's vision is to improve the lives of customers, associates, and communities. Voted American Banker 2022 Best Banks to Work For. Learn more at MyHeartland.Bank.

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