Are you making this common savings mistake?
Saving for the future is hard. But, saving for the future can feel downright impossible when you have student loan debt.
Currently, 3/4 of Americans of all ages have at least one regret about how they’ve managed their finances, according to a recent report from Bankrate. However, every generation feels remorse about specific financial troubles.
The Millennial financial woes
According to the Bankrate study, overall, Millennials most regretted their student loan debt.
Next, Millennials also regretted their inability to build an emergency fund.
Finally, 1 in 5 Millennials cited student debt as their biggest financial regret. This was 3x the amount as baby boomers and more than twice as much as Gen Xers.
Other generational financial issues
On the other hand of the generational spectrum, baby boomers most regretted their lack of retirement savings. Additionally, 27% of Americans of all ages (who participated in the survey) reported their biggest missed financial opportunity as:
- Not saving for retirement earlier
- Not creating an emergency fund (19% of survey takers)
- Accumulating credit card debt (15% of survey takers)
An all too common problem
However, experts worry that the Millennial focus on paying down student loan debt could come at a cost. More specifically? A lack of savings for retirement could hurt Millennials in the future.
“As those same millennials grow older, their lack of retirement savings will catch up with them if they continue to focus exclusively on paying off their loans,” according to YahooFinance. “That’s why it’s important to tackle retirement saving goals at the same time as you pay down your debt. If you try to eliminate your debt first and delay contributing to your 401(k) or an IRA, you’ll miss out on compound interest, a powerful multiplier.”
The remedy to this common savings mistake to focus on paying student loan debt down while also saving for retirement. While this may sound impossible, there are several steps you can take right now to begin saving for retirement.
A few simple savings plans
There are multiple options for saving for the future while also paying down student loan debt. Check out a sampling of expert advice below:
This is the rule recommended by personal financial experts in “Paying down student loans vs. saving for retirement: Here’s how to prioritize,” on CNBC. Under the 50-20-30 rule:
- 50% of after-tax pay goes toward fixed expenses, like rent and car insurance
- 20% of after-tax pay goes into savings, including building your emergency fund and student loan debt repayment
- 30% of after-tax pay is for discretionary spending
Three-tier savings/debt payment plan:
Nerdwallet recommends a three-step approach to saving for retirement while paying down debt in their “Should You Save, Invest or Pay Off Student Loans?” article.
- “Save for emergencies. Nothing will affect your financial future as much as avoiding debt in the first place.
- Get a start on retirement savings. Time and compound interest are on your side. You won’t have this chance again.
- Knock off debt, but start with toxic debt first.” – Nerdwallet
Steps for the future
Regardless of your current financial situation, experts all recommend saving for retirement now. Don’t fall victim to the common money mistake of skipping retirement savings.
Best of luck to you on your personal financial journey!
Alexis Irvin is a writer and documentary filmmaker obsessed with entrepreneurship, careers, and pursuing dreams. Her Millennial career guide, Build Your Dreams: How to Make a Living Doing What You Love, is available at bookstores everywhere! Alexis lives in sunny Los Angeles where she loves to hike, eat tacos, and read on the beach.