It can be tough to be a millennial. Defined as being between ages 27 and 42 currently, millennials are typically somewhere between earning their first larger paychecks and rapidly climbing the corporate ladder.
While money is starting to pour in, so are the temptations in life — from buying a first home or owning a “cool” car to living an exciting lifestyle and keeping up with the Joneses. Financial decisions made as a millennial can have lifelong consequences, both good and bad.
With some smart moves, millennials can make it easier to reach their first $100,000 in savings, prepping them for potentially large nest eggs down the road. In contrast, blowing through money at a young age can prove catastrophic in the long run. Here’s a look at some frugal habits millennials should practice now to help their savings reach $100,000.
Avoid Lifestyle Creep
Probably the biggest financial risk for millennials is that they fall prey to lifestyle creep. This is the tendency to start spending more as you earn more, and those finally starting to earn larger paychecks are often the most susceptible.
It’s all too easy for those who are finally earning a decent paycheck to convince themselves that they “deserve” nicer things, like a better car or a bigger apartment or newer clothes. While there’s nothing wrong with upgrading your quality of life, if it becomes a consistent pattern, it’s going to be difficult-to-impossible to live frugally and save money for your future.
Learn To Say No
Millennials are right in the prime of their social lives. While some may be more settled than others, at ages 27 to 42, many are still eager to go out to clubs and restaurants, host social gatherings and travel.
Living frugally doesn’t mean you have to abandon all of these fun activities, but it does mean that you should learn to say “no” to your friends and colleagues from time to time. If you plan on traveling somewhere every month and going out to dinner every night of the week, you may find that your savings are gone long before your energy is.
Don’t Rationalize
When you’re eager to spend money on something you really want, it’s all too easy to rationalize the spending, even if you can’t really afford it. Excuses like, “I’ll be making more money in the future to pay it off” can lead to a cycle of rising debt, which can kill any efforts to save your first $100,000, let alone build a substantial nest egg.
Use High-Yield Savings Accounts
While a high-yield savings account won’t likely get you to your first $100,000 by itself, it’s a good financial home for money you’re saving that would otherwise be idle. For example, keeping your emergency fund or the down payment for your house in a high-yield savings account could translate to hundreds or thousands of dollars of annual interest in today’s market environment.
That’s an essentially “free” way to inch your savings closer and closer to $100,000.
Spend Discretionary Funds on Investments
Rather than spending your discretionary money on items like a bigger TV or expensive jewelry, kick it into your investment accounts instead. If you divert even a few hundred dollars per month towards investments rather than expenses, you could end up with tens of thousands of dollars in your pocket rather than watching it fly out the door.
Choose Purchases Wisely
Living frugally doesn’t mean you should never buy anything — or only buy the cheapest items available — but you should take the time to choose all of your purchases wisely. If you’re buying something that’s high-quality and will last a long time, it will often prove to be a financially wiser purchase than something that’s cheap but low-quality and short-lived.
On the other side of the coin, you should also avoid paying top-dollar for a name-brand item just for the supposed status that it offers.
Share Expenses With a Roommate
Until you have the money to buy your own place, consider living with a roommate. Although you might have to trade off some of your privacy, your savings could make a big difference for the rest of your life.
Imagine you’re renting a $1,500 apartment with other costs like utilities and streaming memberships that boost the total monthly bill to $2,000. If you open your doors to a roommate, you’ll immediately save a whopping $12,000 per year. How big a deal is that? If you invested that $12,000 at an 8% annual return, after 40 years it would grow to nearly $300,000. With little effort on your part, and just one year of sacrificing, your nest egg would receive a significant boost.
