Fear of Missing Out (FOMO) is the new “Keeping up with the Joneses” for the millennial generation. It’s not to say that this cohort doesn’t spend on the latest and greatest products, but I’ve also seen that millennials are more often spending on experiences, which can get in the way of preparing for the future. A study from The National Institute on Retirement Security reveals that nearly two-thirds of working millennials have nothing saved for retirement. While taking exotic trips and going to the best restaurants or festivals seems par for the course for millennials, this generation should understand the long-term impact of prioritizing instant gratification over long-term security.
With a long time horizon until retirement, take full advantage of the effect of compounding interest for the decades leading up to retirement. To make the most of this, prioritize goals and put things in perspective. While saving for retirement may not be high on millennials’ priority list, it should be a priority. It’s all about moderation, don’t sacrifice having fun in your life to save for the future, but also don’t sacrifice your future to do everything you want in the next five years.
Finding a middle ground starts with creating a budget and sticking to it. Allocate some money for retirement savings while carving out some cash for fun and vacations. While a balance of saving for retirement and not missing out on experiences is important, it’s also important to be prepared for unexpected expenses that crop up. Allocate some of your budget to an emergency fund in case you have an illness or injury, a surprise house or car repair, or an unexpected job loss. Having an emergency fund will allow you to have some cushion so you can enjoy your life now without feeling like you’re tapping into savings or wracking up credit card debt to go on vacation. Having that financial safety net can also help so you don’t have to tap into that retirement account early and incur penalties.
So how does one stick to a budget? It’s easier said than done and trying to keep up with peers can get in the way. However, all the automation tools available can make things easier. Set up automatic transfers from your paycheck to a retirement account before you even see it. If you don’t know it’s there in the first place you won’t miss it! Similarly, you can utilize automatic transfer to a savings account. Then, you can spend the leftovers however you wish. This will help you pare down discretionary expenses and realize how much money you have to play with.
Retirement isn’t something you can borrow money for; you either have enough money saved or you don’t. Although it’s tempting to not miss out on things now, staying disciplined and utilizing tools to ensure you’re prepared for retirement will be important for having the lifestyle you want in retirement.