3 strategies to save money and build wealth, even if you feel like you don't earn enough
- A Business Insider and Insider Intelligence survey found that many millennials felt their income was holding them back from making progress financially.
- It's true that millennials as a generation are facing serious headwinds, but many people have the ability to save or invest, even on a small scale.
- Three strategies you can use to save more are to treat savings like an expense, set up automatic transfers, and make a plan for how you'll spend windfalls.
- This article is part of a series focused on millennial financial empowerment called Master your Money.
Millennials were feeling the financial squeeze long before the pandemic ravaged the US economy.
Even amid record-low unemployment rates pre-COVID-19, wage growth was sluggish. Combine that with cost-of-living increases and a rise in overall student-loan debt, and millennials face what Business Insider's Hillary Hoffower has deemed the "Great Affordability Crisis."
Millennials are behind previous generations in terms of wealth creation, and data from Business Insider and Insider Intelligence's Master Your Money Invest & Thrive Survey shows that many believe their income is the biggest hindrance.
In total, 41% of the 2,020 survey respondents (millennials, defined as ages 21 to 38) said they were not investing in any financial products. Of that group — a sample size of 837 — half said one thing that would cause them to start investing was earning more money (they could select up to three responses).
Investing isn't imperative for anybody, according to the certified financial planner Eric Roberge. But not putting your money to work in the stock market means you'll likely have to make up for it by saving more to reach your goals, such as retirement.
Of respondents who had financial goals — a sample size of 1,807 — 54% said one of the main barriers to reaching their goals was career or salary limitations (again, they could select up to three responses).
When asked what would give them the most confidence in dealing with financial uncertainties, 28% of the total sample size of 2,020 said a higher salary, the most cited response behind having more savings (35%).
Here are three strategies for saving more money, even if you feel like your income is too low.
1. Include savings in your 'spending plan'
Savings and spending are intertwined. Zuzana Brochu, a certified financial planner and vice president of financial-planning strategy at People's United Advisors, told Business Insider that every "spending plan" should start with a line item for savings.
Whether you need to fund an emergency savings account or contribute to a retirement account but feel like you don't have enough disposable income to do so, try reversing your thought process. Begin by listing your nonnegotiable monthly expenses (food, housing, etc.) and add an amount for savings, even if it's small.
Subtract the total amount from your monthly income; whatever you have left over is truly disposable income. This way, savings are treated like a regular expense, and it won't feel like you're dipping into your fun money later.
If you're left with nothing or end up in the red when you use this strategy to save off the top, it's probably time to reevaluate what you consider necessary expenses. Chances are there's room to make some cuts.
2. Automate savings and investments
Automatic transfers and deposits are two of the greatest tools in modern money management.
Decide once, and then perhaps again at regular intervals, when to save (i.e., once a month) and how much to save (i.e., $100 each time) and move on. It all but eliminates a decision-making process that is often fraught with emotion and procrastination.
Workplace retirement plans are a prime example of automation in action, and you can replicate that process with an individual retirement account at a brokerage, Brochu said. Ideally, you can set up deductions directly with your payroll provider to deposit a portion of each paycheck into your retirement account. If that's not possible, set it up so that there's a quick transfer after your paycheck hits your checking account. That way, you don't have a chance to spend the money first, she said.
If you're working on building a cash reserve, use the same strategy with your savings account.
3. Make a plan for your windfalls
If you're lucky enough to get a tax refund, annual or quarterly bonus, or inheritance, these are perfect opportunities to bulk up your savings — just make sure you have a plan in place.
Sometimes windfalls happen unexpectedly. Take a few minutes now to think about the best way to use any extra cash you may get in the next six to 12 months. Perhaps half of it will go directly into a savings or investment account and half will go toward prepaying bills, or even a celebration.
However you decide to break it down, having a plan in place before the money hits your pocket will hopefully reduce the temptation to spend frivolously. It's a privilege to get a financial windfall, so do what you can to make the most of it.
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