Dear Generation Y colleagues, as the oldest member of your generation, born in 1981, I believe it is my responsibility to share a nugget of savings wisdom.
First of all, let’s recognize that saving money isn’t fun, especially for something as far back as retirement. Saving for retirement can feel like igniting money or throwing it into a black hole. Of course, there is technically a balance in an account somewhere, but retirement as a concept is relatively abstract and that may not seem like a big deal to you right now given all the other possible financial demands in the present.
So if the idea of saving for retirement isn’t your thing, figure out a financial goal you’re passionate about and consider prioritizing saving for that goal.
Now, you absolutely must always save up to the employer’s match in your retirement plan, assuming you are covered by (free money!). But, beyond that, the amount you save is probably going to be worth a lot more than the return you earn on those dollars.
The key to goal savings is finding something that allows you to set aside funds that you wouldn’t otherwise have. What financial goal makes you postpone your vacation, buy that new product, go to that fancy restaurant, etc.? In the case of my wife and I, there is one thing that made us save like crazy: student loans.
I know what you’re thinking: “This kind of random retirement investment research has no idea what it’s like to have student loans. He’s too busy flying in his private jet to drink handmade cocktails.
Well unfortunately I have never flown in a private jet (although I do enjoy a good cocktail). My wife and I had $ 430,000 in student loan debt at its peak. Unfortunately, it has become a sort of millennial rite of passage.
As an investment specialist, you might think that I would invest additional savings in cool tech stocks and pay back the loans over the next 50 years. You would be wrong. We have allocated a ridiculous amount of money to pay off these loans, money that we probably could have saved for retirement.
Here’s the thing, though. Even if the interest rate on our student loans was 0% – so far we’ve been able to refinance them a few times and bring it down to less than 2% – I would still be willing to pay them back.
I understand that this is not necessarily the “rational” approach, as we could probably earn a higher return by investing the funds in the stock market. But it’s not really about the interest rate, but rather the fact that we hate having student loans.
While we never really had the (serious) desire to quit our job and move to an exotic beach or join a startup, back in the days when our student loans were at their peak, it would have been financially impossible to do it if we were so inclined. . As many of you know, student loans can be dream makers.
Despite all their misery, student loans have made my wife and I great savers. Having a large student debt created a desire in us to save that would probably not exist otherwise.
When we finally succeed in killing our student loan dragon, which will happen sooner or later, we plan to redirect those savings to other things, like a college fund for our four children or to focus on retirement.
Becoming a good saver isn’t easy, and if you’re having trouble, it would probably be wise to focus on something you really care about. This thing doesn’t have to be the “right” or “smart” thing, financially speaking, it just has to be the thing that makes you a better saver.
Eventually, you can start saving for retirement, but everyone has to start somewhere!