Millennials often get a bad rap when it comes to hitting certain financial milestones like moving out or buying a home, but they've proven to be ahead of the game when it comes to savings. In fact, 25 percent of Millennials who save have amassed more than $100,000 in their accounts.1 What else should members of the Millennial generation (and others) know about boosting their savings rate?
The More You Save, the Less You'll Need to Save
Getting an early start on saving (or investing) can allow you to dial back your savings later in life.
For example, someone who invests just $100 per month, or $1,200 per year, starting at age 25 will wind up with around $162,000 at age 65 (assuming a 5 percent rate of return). Investing the same amount, at the same rate of return, starting at age 35 will yield only $89,000.2 Even if you can only afford to put a little aside now, making savings a habit will pay off in the future. And if you're able to save even more at a younger age, you'll have more freedom to dial back your contributions in the future when you're facing kids' college expenses or an unexpected job loss.
Investing Can Accelerate Your Returns
Although you don't want to risk money you're likely to need soon, when it comes to your long-term savings, investing can help you avoid the dangers of inflation. In other words, what you can save for your retirement in 2020 dollars may not be enough when it comes to 2040 or 2050 dollars. By putting your long-term savings in the stock market, you might have better odds of achieving an inflation-beating return and allowing your money to grow.
Don't Fret About Spending—It's What Savings are For
Often, a major expense like a car repair or broken appliance can strike just as your savings have hit a certain milestone. You may feel as though you're moving backward when you spend your hard-earned savings on an unplanned expense.
But even if—or when—you need to spend the funds you've set aside, you remain in a better financial position than you'd have been if you had not saved these funds. Having an emergency fund in cash can help you avoid paying high credit card interest rates or taking out a high-interest personal loan. Don't worry about minor setbacks, and keep your eye on the ultimate goal of financial independence.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal advisor.
Investing involves risks including possible loss of principal.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.