Johannesburg – Millennials are reinventing the idea of long-term saving, but they are still struggling to find a balance between meeting their current needs and those of the future, said an expert.
According to a study by Bank of America, millennials are the first generation to plan for the long-term in order to achieve financial freedom. The report revealed that in the US 63% of millennials are saving to live their desired lifestyle, compared to 45% of baby boomers and Generation X. More than half (55%) of Baby boomers and GenXers are saving for retirement, while only 37% of millennials are focused on retirement.
Ntombi Tisani, head of marketing at Old Mutual personal finance said similar trends can be observed in South Africa. Research by Old Mutual shows millennials are not necessarily contributing to retirement savings, but they are making small changes to their daily spending habits and are increasing informal savings. This includes cutting back on luxuries like holidays, shows, clothing and alcoholic beverages.
But she said it was still important for millennials to consider retirement. “The 2016 Old Mutual Savings and Investment Monitor revealed that a majority of young people have not yet started saving for their eventual easing from work later in life, with only 38% of youth contributing to a formal retirement structure,” she said.
If millennials want to retire by age 65, they should start saving enough to ensure the pension they receive is 70% of their salary at retirement. This means, for the full duration of your work life from the age of 25, you should be investing at least 15% of your monthly income into retirement savings, explained Tisani.
Finding the middle ground
“Advice and planning is essential, and having a budget is the best way to do this,” explained Tisani. “It helps you to keep track of where you are with your finances each month, how much you are spending versus how much you earn.”
Tisani explained that it is good to get in touch with a financial adviser. “A financial adviser can help you build a plan and stay on track for both short term goals, like travel or new car, and long term goals like retiring at a certain stage or with a certain income.”
Tisani shared ways millennials could develop a positive savings culture:
1. Eat out once a week instead of every night.
2. Don’t buy things you don’t need and don’t try to keep up with others. Everybody’s needs are different. Live according to your own.
3. Plan a movie night at home instead of going out to the movies.
4. Take care of the things you have.
5. Don’t make excuses to avoid saving.
6. Use credit sparingly and carefully. Rather save toward something. "It’s better to spend money you have earned than spend money you still have to make."
7. Try pay off debt quickly.
8. Ask questions and get needed information.
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