You can take this to the bank: Millennials are optimistic. Exhibit A? Fifty-three percent of millennials expect to become a millionaire — or are one already. That optimism is even more pronounced among male millennials. An astounding 73% of them expect to become millionaires or already have reached that goal. Still, there’s nothing wrong with aiming high. So the key question is, How can millennials achieve their aim of amassing $1 million?
Experts suggest several ways that millennials — who range from 21 to 37 years of age, brokerage TD Ameritrade (AMTD) says — can build their wealth. One way is to save money by investing in assets that grow — not just park them in a piggy bank where they do nothing. Another step millennials should take, one expert says, is to limit how much advice they take from the, you know, “experts.”
“You can learn a lot from your peers, not just from older ‘experts’,” said Ian Rosen, CEO of StockTwits, an online community of nearly 2 million investors and traders, the bulk of whom are millennials. StockTwits members help educate each other by sharing more than 200,000 messages per day about markets and investing.
Rosen says that many millennials are jaded about so-called experts, who were the high priests of the financial industry and nearly broke the global economy during the Great Recession, enriching themselves while financially hurting millennials’ parents and grandparents. “Given those things, younger people have taken the opportunity to learn on their own (about personal finance and investing) and from each other.”
Millennials Becoming Millionaires
So, here are additional tips from advisors with know-how in the dos and don’ts of successful savings strategies. They’re custom-tailored for millennials, but they work just as well for savers of all ages:
- Get your priorities straight. Many millennials save for the wrong goals. That prevents many from putting enough money into saving for retirement and other key goals. The most common saving incentive is to pay for a vacation, which 43% of millennials cop to. The third most often cited motivation is retirement, which 38% say they do. (Thirty-nine percent save to build an emergency fund.)
“Millennials need to change their saving priorities,” said JJ Kinahan, chief marketing strategist for TD Ameritrade. “Retirement is more important than vacations. It’s that simple.”
- Start early. Millennials expect to start their first job at age 25. But they don’t plan to start saving for retirement until they are 36. “Many millennials focus on paying off student loan debt,” Kinahan said. “But if they’re going to postpone saving for something, it should be something other than retirement.”
Why does that matter? “Time is money,” Benjamin Franklin said. One reason that’s true is because of compound earnings. The more time something can grow, the more it can compound. “Time is one of your easiest and most powerful investment tools,” Kinahan said. “Don’t waste it.”
- Make saving easier. Make saving for retirement and other essential goals less painful by doing it through an automatic deduction plan at work and through an auto-deposit arrangement into a retirement account. Kinahan said, “If you don’t see it in your paycheck, you won’t miss it.”
- Reduce debt. On average, millennials have nearly $15,000 in debt — even when you include those who are debt-free! The interest you pay on debt is money that ought to go into your retirement savings account. So is a lot of the principal, for that matter. After all, which is more important: racking up debt to buy, say, a new television or funding your IRA?
“Paying off debt is essential to becoming a millionaire,” Kinahan said. Since credit card debt charges very high interest, shop round for a balance-transfer card that would charge you less. Also, pay down the balance on whichever credit card charges the highest interest. And if you pay off debt in minimum monthly installments, be sure to pay down principal as well as interest so that you eventually get rid of the balance.
- Invest in stocks. If you park your savings in cash or bonds, your money loses purchasing power due to inflation year by year. Instead, invest in stocks, which grow over time. “That’s the value of compound earnings,” Kinahan said. “And don’t waste that power of time by starting 10 years after you begin to work. Start to save right away.”
Yet 50% of millennials don’t invest in the stock market. “Many millennials don’t realize that investing in an equity mutual fund means you’re investing in stocks,” Kinahan said. “And broad ETFs and mutual funds are a good way to start. You’re letting a professional make the investment decisions. And by investing in many stocks, you diversify risk.”
IBD’S TAKE: Are you a millennial who’s looking for investment tips? Here’s investment advice tailored for millennials.
- Don’t give up free money. If your workplace offers a 401(k) plan that provides a matching contribution by your employer, use it. That match is like a free pay raise. Many companies match your contribution up to a certain amount of your pay, such as 6%. “Millennials should contribute the minimum to receive the full employer match,” said financial advisor Christopher Cortese, director of Next Generation Advisor Development at Philadelphia-based Wescott Financial Advisory Group.
- Buy a home. “The biggest mistake millennials make is renting and waiting to buy a home,” said David Bach, director of investor education for AE Wealth Management and author of the best-selling “The Automatic Millionaire.” He added, “Homeownership is an escalator to wealth. You have to be on it to become rich.”
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