According to 2018 data from the National Institute on Retirement Security (NIRS), two-thirds of millennials had nothing saved for retirement. And no, it's not because we spent too much on lattes or avocado toast. It's because we (and Gen Z) are burdened with loads of student debt and wages that aren't really keeping up with inflation. Oh, and those piddly little expenses necessary to our survival — like rent, food, gas, and other bills — that keep going up.
At the same time, when you're young, you have the most finite resource of them all on your side: time. If you can afford to start socking even just a little cash away for your retirement and other long-term goals now, you can tap into the magic of compound interest.
You can think of it as a Katamari ball of sorts. As you push the ball along, it collects more objects along the way, and gets larger and larger. So how exactly can you save for Future You when money is tight?
For some pointers, I spoke to Faron Daugs, a certified financial planner and founder and CEO of the Harrison Wallace Financial Group, on how to start saving up for long-term goals like investing for retirement when you’re in your 20s. Here's what he had to say:
1. First, it’s important to know what you’re getting into. So before you start, do some research on investing and get familiar with how things work.
2. You’ll want to start small, and save early and consistently. A tax-advantaged retirement account — think a 401(k), a 403(b), or an IRA — can be a great place to start.
3. When you’re saving for Future You, it’s important to understand the connection between risk and reward. When you invest in high-risk assets like stocks, you usually have a greater potential for gains.
4. If you’re pretty new to investing, Daugs recommends a diversified portfolio to start.
5. And as your investment funds grow over time, you might want to carve out a small portion of your portfolio to invest in specific sections, says Daugs.
6. This might go without saying, but don't ignore your student debt.
7. At least once a year, do an annual check-in and assess your entire financial picture.
8. To make sure you’re on the right path, consider working with a professional, such as a financial coach or counselor.
9. Last, you’ll want to have a cash reserve set aside for both emergencies and opportunities. The golden rule is to aim for three to six months of your living expenses.
Finally, Daugs says, "Don’t wait to save too late — it’s more difficult to catch up in later years if you did not start your savings plan early."
“By starting early in an IRA and taking advantage of matching contributions [with an employer-sponsored plan], you allow for the power of compounding to help you build and grow your savings.”