The millennial generation—those born between 1981 and 1996—eclipses the size of the baby boomers in numbers. But when it comes to wealth building, millennials are falling behind.
Their predicament is understandable. Many were just starting to learn about investing around the time the dotcom bubble burst and the 9/11 terrorist attacks happened. Then they were hit by the Great Recession that started in December, 2007.
Millennials have had a tough time finding jobs that pay enough to offset their college loans. Even after finding good, steady employment, they’ve remained suspicious of the traditional American modes of building wealth: Investing in the stock market and buying real estate.
Though they may be behind previous generations in saving money, it’s not too late for millennials to turn things around. They can do that by taking three basic steps—steps that young adults in any generation should take.
The first is to begin building an emergency fund of six to nine months’ take-home pay. That may sound like a lot, but when unexpected expenses arise, dipping into a fund is much better than using credit. Once the fund has met your savings goal, keep contributing to it to create a nest egg for a future down payment on a condo or house.
The second important step is to save for retirement. You should always contribute the maximum amount to any employer-matching plan, but that alone is not enough. Most plans match only up to 3 or 6 percent of contributions. Though your own savings target will vary according to personal circumstances, in general, you should be saving north of 20 percent of your annual income.
If your employer offers a Roth 401(k), seriously consider stowing your retirement savings there. You’ll save a tremendous amount in taxes over your lifetime.
The final step is to buy long term disability insurance. It may be hard to think about disability in the early stages of life, but accidents do happen—even to the young. If your employer doesn’t offer disability insurance, try a reputable source like Policygenius or LLIS.
To learn more about wealth-building for millennials, check out these helpful links: