How Millennials Can Start Saving More for Retirement

The earlier we start, the easier it is to save up for financial freedom—aka retirement. Why? The eighth wonder of the world: compound interest. While retirement may seem far off when we are young, compound interest (or interest on interest) makes it worth our while to start contributing funds to our retirement early on. Any contributions, including small amounts, make a huge difference when given the chance to accumulate.

While many millennials know the basic principles behind retirement savings, financial freedom doesn’t feel like a reality. For people in this generation, retirement either feels too far away to start saving for, or it feels like a total impossibility given their current financial picture. It’s something many of us worry about a lot.

If you don’t feel like financial freedom will ever be possible, the first thing to know is that you’re not alone in feeling this way. According to a Wells Fargo poll of working millennials, 64% surveyed said they would never accumulate $1 million in savings over their lifetime. 73% percent of women felt this way!

In addition, 43% of millennial men said their finances were stretched too thin to save for retirement, while 54% of women said the same. And according to Bank of America’s Better Money Habits Millennial Report, 41% of millennials said they were “chronically stressed” about money.

While 84% said they felt confident in their ability to manage their finances, millennials said they feel less experienced in knowledge of finances (17% felt knowledgeable), as opposed to their expertise in things like social media (34%) and food (33%). And despite spending time each week tending to their personal finances (approximately 3 hours on average per week—the same amount of time as they spend working out), only 40% believe they are financially fit.

And there are some very legitimate reasons that millennials feel this way. Many are saddled with debt from student loans and credit cards. Others don’t have 401(k) accounts because they work for an independent contractor or for a small business—career paths that are very common for their generation.

Interestingly, millennials are actually less likely than their counterparts in older generations to open a 401(k), even if their employer offers matching contributions. Crazy, right?

Well, not so much. Most millennials aren’t learning about their finances and how to manage them, including retirement. This can lead to feeling discouraged about everything retirement-related, and choosing to ignore the problem rather than face it head on.

If you’re among the group of millennials who is feeling “chronically stressed” about retirement, don’t fear. Here’s what we can do to change your mindset around retirement saving while you start saving more.

SMART SMALL AND WORK YOUR WAY UP.

Many 401(k) and retirement accounts allow you to set up automatic increases to your contributions. If you have a 401(k), try setting your account to automatically increase by 1% of your pre-tax salary every six weeks. This way, we pay ourselves first, rather than letting our entire paycheck go towards expenses. You’ll be contributing meaningfully to your retirement fund in no time without feeling the pain of paying out of your paycheck. Don’t believe me? Try it for yourself and see. It really does work!

THINK FINANCIAL FREEDOM, NOT RETIREMENT.

When we think about retirement, we often consider it to be this far off thing—almost as if it’s completely removed from our lives. Some of us don’t think about retirement because we don’t want to think about growing older!

When we think of it as financial freedom or work-optional, though, it becomes a lot more relevant. We will always have expenses, but at what point in your money life will you be able to rely on your investments instead of on a paycheck?

When will you be able to decide if you want to stop working or if you want to pursue a different kind of work (maybe something that’s less lucrative)? Financial freedom allows you to make choices that aren’t solely based on money. It’s the ultimate freedom, allowing you to decide what to do with your time and giving you the flexibility to decide how you want to live and create your life.

SET UP A REALISTIC HAPPINESS ALLOCATION.

Happiness allocation is my term for spending plan or budget. We typically think of budgets as being very restrictive; they make us think about having to say no to things and deprive ourselves—kind of like being on a diet.

But budgets can actually be freeing and powerful—and it starts with a change in mindset around them. I refer to budgets as happiness allocations because they’re simply a tool to help you allocate money in a way that will bring you the most joy (in the short-term and the long-term).

You can only use each dollar once (this is true even for billionaires!), so be sure to allocate your money in ways that maximize your happiness in the present but also set you up for financial freedom and joy in the future. When we set up a realistic happiness allocation, we often find that there is some room for “fun” spending even while we stay on track with our savings goals. There’s no feeling more liberating than that!

CHECK IN QUARTERLY.

Create a quarterly calendar reminder to check in on your retirement planning. This is a great opportunity to consider increasing your paycheck contribution, take stock of your allocation, and evaluate where you stand (and what your mindset is) in relation to your goals.

Remember, thanks to compound interest, even small contributions make a big difference. It’s not a race to the finish—it’s a journey toward financial freedom.