Saving money can be difficult – especially when you don’t have much of it, to begin with. Between sky-high rent, enormous student loan payments, expensive cell phone plan, and a bit of fun here and there, you likely don’t have a lot of money left over at the end of the month to put towards your future.
If your savings account is running on fumes and your financial plan is to either win the lottery or become an Instagram celebrity, you’re not alone. According to a recent study by HowMuch.net, over half of millennials ages 18 to 34 have less than $1,000 in their savings accounts.
While many might think that millennials’ biggest savings challenges are curbing their avocado toast or latte habits, let’s be honest. Millennials deal with much bigger financial issues like unemployment and paying down their student loan debt. And, some experts believe that millennials actually have to save more than previous generations due to lower investment returns. In fact, according to a recent NerdWallet study, millennials might have to save as much as 22% of their income in order to replace 80% of it by the time they retire at age 67.
So, what can millennials do to improve their savings? For one thing, they can start automating them.
What is Automatic Savings?
There’s a reason why computers are taking over – they don’t forget. Once you program them to do a task, they do it every time. They don’t get busy and skip a month. It doesn’t slip their minds. That’s why you likely pay some of your bills automatically.
Automatic savings is similar to automatic bill paying, only you’re paying yourself first. You’re not trying to avoid having to pay late fees or having your electricity cut off if you forget a payment. You’re making a commitment to invest for your future.
It can be difficult to make room in your budget for savings, but if you automatically transfer funds from your checking account into your savings account, this makes it easier because it’s no longer a choice. You set it up and then forget about it. When you check your balance to see how much avocado toast you can afford this week, the answer might be one or two pieces rather than seven, but at least you’ll know that you’re making that sacrifice for your future.
The Benefits of Automatic Savings
Automatic savings is perfect because you’re busy. You don’t have to remember every month to make a contribution to your savings. It just happens. You also don’t need to muster the willpower to choose your future over a new pair of jeans. Not having that money in your account removes the temptation to spend big on Taco Tuesdays. Instead, maybe you make your own tacos and margaritas once or twice this month.
Another benefit? It’s effective. The best way to save for retirement, a trip around the world, a down payment, or any other financial goal is to routinely put aside money and build your savings. This way it has time to grow.
Why Saving Early Is Important
There’s a reason why people tell you to save money when you’re young. The more time that your money has to grow before you retire, the more your money you’ll have thanks to the magic of compound interest. Compound interest is when the interest that you earn on your original investment starts earning interest of its own. This, in turn, helps to increase your investment returns because you are earning interest on a constantly growing balance.
How to Get Automated
The first thing that you need to do is set a goal for how much you want to save every month. Take a look at your budget and where you can cut back in order to put aside at least 10% of your income.
After that, set up a Chime Bank Account and let start automating from there. Chime will even deposit 10% of your paycheck into your savings account.
Step three? Do nothing. Or no – spend time imagining a glorious retirement where you can eat as much avocado toast as you want.
Nate Matherson is the Co-Founder and CEO of LendEDU.com.