Millennials

Time is money. And the Millennial generation, which is now making headlines for its low savings rate, seems to have missed that lesson completely. Astoundingly, a new study by Moody’s Analytics says most adults under age 35 have a savings rate of negative 2 percent!

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In fact, Millennials are taking on so much debt, and saving so little, that their net worth is actually declining as a group. It’s become a lifestyle habit to spend all you earn — and more. Just look around the fancy restaurants, the chic hotel bars, the designer clothing stores — and you will see these spots populated by the generation that was born between 1982 and 2004.

Millennials’ negative savings rate compares with a positive savings rate of around 3 percent for those age 35 to 44, and 6 percent for those 45 to 54. Those over age 55 have gotten the message; they have a savings rate of 13 percent, according to the Moody’s report. There are plenty of excuses Millennials can make for not saving — and some of them make a good point:

— I’m just getting started, and working at a low-wage job.

— I’m overwhelmed with student loans, and have no money to save.

— This is the time to buy stuff — just setting up my first apartment or home.

— Babies cost a lot of money!

— The stock market is just a “rigged game,” and your money goes down the drain.

But whatever your excuse for not saving, the impact of this decision will be magnified over the years. If you had just started saving a hundred dollars a month in 2008, and invested it in a diversified stock market fund inside an Individual Retirement Account or your 401(k) at work, you would have doubled those initial contributions, and had huge gains on your additional small, regular investments.

The Dow Jones Industrial Average has more than doubled from its lows of around 6700. And history shows there has never been a 20-year period, going back to 1926, when you would have lost money in a diversified stock market portfolio with dividends reinvested — even adjusted for inflation.

Even a small amount of regular savings, magnified by time and exposed to growth opportunities, can set you on course to financial freedom. The amount of time you save and the regularity of your investments actually matters more than the amount of money or the investment decisions.

The Savings Secret

There’s a simple truth to finding money to save: If you don’t see it, you won’t spend it!

Money that is taken out of your paycheck automatically and diverted toward savings and investment is money you aren’t tempted to spend. After all, FICA (Social Security) and income taxes are taken out of your paycheck before it hits your bank account. And you can’t complain that you “can’t afford” those deductions!

It’s more difficult to start saving than it is to keep saving. As the money piles up — even a small pile — out of your immediate reach, it becomes an incentive to keep saving more. Then one day your money starts growing on its own though your investments. That creates a whole new motivation to add to your savings.

Some Savings Tips

It’s difficult to cut back on your current lifestyle, so the best way to start the savings process might be to figure out how you can earn just a little bit more every month. That doesn’t mean asking the boss for a raise.

It might mean getting a weekend job, not necessarily in line with your career. But you could become a restaurant server or a babysitter for your neighbors on weekend evenings. Use that newfound cash to both pay down expensive debt — and to build a savings reserve.

Sell something! You may own a lot of stuff that you don’t need anymore. Selling, even at a low price, will do two things. First, it will serve as a reminder of how you wasted your money in the past. And second, it will jump-start your savings program.

Put the new money somewhere separate from your everyday checking account. Open an account at another bank. When you’re just getting started, convert the cash you have into hundred dollar bills, saved in a secure place. It’s much harder to spend a $100 bill than to slide a $20 out of your savings stash! And even saving your pocket change can add up in the long run.

Want proof that even a little bit of saving may make a big difference in your financial future? Consider this:

If you saved just $40 a week and invested it in a stock market mutual fund (an S&P 500 index fund) inside an IRA, and reinvested all the dividends — and if the market performs, on average, as well as it has done for the past 60 years (a 9.9 percent average annual return) — then in 50 years you could have an account worth $2.5 million!

Of course, no one is making any promises about the future. And there will surely be lots of ups and downs for the market in the coming decades. But isn’t it worth making an investment of about $6 a day and taking the odds that you’ll come out way ahead, by millions of dollars?

Time is money — and it’s your choice how you spend it. That’s The Savage Truth.

Terry Savage is a registered investment adviser and is on the board of the Chicago Mercantile Exchange. She appears weekly on WMAQ-Channel 5’s 4:30 p.m. newscast and can be reached at www.terrysavage.com. She is the author of the new book “The New Savage Number: How Much Money Do You Really Need to Retire?” Terry answers readers’ personal finance questions on her blog at www.TerrySavage.com.

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