Forbes recently published an article titled “4 In 5 Millennials Optimistic For Future, But Half Live Paycheck To Paycheck.” It’s a well researched piece, but it made me wonder — if millennials are so optimistic, why are they so short sighted when it comes to their financial future?
(Disclaimer: I say “they,” but having been born at the end of the 70s, I consider myself half Gen X and half Millennial, so I might be talking to myself here.)
Here’s a little snippet from that article that caught my eye: “The cautionary note is that they appear to be living very short-term paycheck to paycheck and not thinking as much about long-term financial savings.” The quote is from a corporate social responsibility executive from Bank of America, who no doubt has a vested interest in you putting your cash into your bank account as opposed to spending it at Amazon.com. Bias aside, the point is clear — millennials, in general, are not forward thinking when it comes to investing.
The question is, why? I think the answer is twofold.
- Our culture rewards short-term thinking. Your friends don’t admire you, high-five you, or like your Facebook posts when you tell them you saved an extra $500 dollars in your IRA. New $500 smartwatch, however? Lots of likes.
- It’s hard to think about what your life will be like in 40-50 years. If you watch the TV news, you might find it hard to believe anybody will be alive in 40-50 years, let alone ponder how much money you’ll need for your retirement. Will you be married? Any children? How long will you need a retirement fund?
I am not under the delusion that I might change our short-term cultural focus in a blog post, but I can equip you with some of the tools and techniques I’ve used to better understand what I want in my financial future. I wish they taught some of these concepts and principles in school or college — I had to learn the hard way, after bumbling through a bad investment bond, a real estate deal I’ve gotten stuck with, and a missed 401k opportunity.
If You Haven’t, Start a Retirement Goals Binder
Having all of your retirement and longer-term materials in one folder/binder/envelope keeps things organized, and it’s a valuable starting place for retirement planning. This isn’t my suggestion — Alexa has recommended this to the community before. And while Alexa was thinking more medium-term goals like buying a house, the concept is still solid. Plus, this gives you a safe place to put those financial statements and other paperwork that you tend to gloss over — because yes, at some point you need to take a look at what’s in those financial statements.
I have a file in my drawer where all of my investment stuff goes — it’s all together so it’s easy to check, and keeping it organized helps me avoid resistance in checking it.
Journal About Your Future Life
I’d like you to add a journal to your retirement binder. You will use this to document ideas and thoughts about what your future life(style) will look like. For this step, I specifically suggest using pen and paper, because research suggests that there’s something about filling in the blank page that will enable you to more clearly think through your options as opposed to typing up a bulleted list in Evernote.
You can freehand write, you can draw pictures and doodle, or you can make lists. Here are some prompts to help you get going — feel free to add your own, or tweak:
- What do I know for sure? Example: I want to live by the ocean when I retire, in a cottage within walking distance of the sea.
- What do I enjoy now that will be part of my future life? Example: I have an expensive wine habit and want to continue to enjoy in retirement.
- How will I spend my time in retirement? Example: I want to retire early and work part time on my passion for playing guitar.
- What am I excited about in my financial future? Example: I am looking forward to paying off my mortgage and renting out my apartment for retirement income.
- What are my worries about the future? Getting these down gets them out of your head and maybe you’ll realize they are minor concerns, or maybe they are things you can plan for now. Example: How will I pay for health insurance?
The more you journal, the more you can learn about what your desires, needs, and wants. The more you journal, the more you’ll begin to paint a picture of your financial future. Don’t worry about having all the answers now, because yes — things can change. If you’re spending a little bit of time thinking about this, you’ll be far ahead of most investors.
I use a little journal from Scoutbooks that slips into my file folder that I review and update when I sit down and do my year in review. It’s small, which means the pages fill up quickly, which makes me feel accomplished when I use it.
Adjust Your Habits to Align with Your Desired Future
Remember when we talked about the habits that will make you rich? The reason I bring up habits is because the decisions you make now can have a big affect on your future. For example, there are a variety of calculators that clearly illustrate the power of compounding money. You can invest a few thousand dollars now and end up with tens of thousands of dollars in retirement. The opposite is true too; if you are carrying credit card debt with high interest rates, a few hundred dollars now can add up to several thousand dollars later if you don’t pay off those debts.
I’m not asking you to stop drinking lattes or buying organic food. I’m asking you to look at your current habits and see where you could make easy changes to smooth your path toward that financial future you’re now envisioning. I’m also asking you to reality-check your assumption that your retirement funds are on track. Have you checked how you current savings rate will impact your retirement funds?
How do you feel about those numbers? In my case, this quick reality check reminded me how much compounding can impact me, and keeps me motivated to always make sure I contribute the maximum to my IRA. Being a freelancer, it’s easy for me to want to skip it, and some months I do, but every year when I do my taxes I try to make sure I’ve upped my contribution if I can — I always ask my accountant to check-in with me to keep me accountable. This step is all about recognizing where your current spending habits are putting you in your wealth goals and adjusting your regular contributions so you are maximizing the chances for your money to compound and grow over the coming decades.
Schedule an Annual Checkup
It’s not a good idea to obsess over your long-term investments. You should, however, schedule an annual checkup with yourself to see how your investments are doing and what needs to change. I personally do this as part of my year-end activities, mostly because it’s a quiet period at work, but also it seems everyone else is working on planning so I don’t feel so alone in my efforts.
An additional bonus is that having an annual checkup helps you avoid irrational, rash decision making.
Here are some of the questions I look at when I do my annual long-term retirement check-in:
- Has something changed in my lifestyle or financial outlook that affects my long-term financial future?
- Am I taking full advantage of my current investment vehicles (e.g. 401k match, IRA annual contribution)?
- Are there tax-reducing opportunities I am missing out on?
- Do I understand the performance of my current investments in the past year? Based on the performance, do I need to make changes? (Research and/or talking to an advisor might be helpful on this one — try reviewing the Ultimate Retiring Savings Guide to start!)
Put this checkup on your calendar right now. Plan for 2-3 hours, put on a kettle of tea, a nice snack, and settle in for a bit of future-forward thinking.
What tools and practices do you use to plan for your financial future?
About the Author: Andy Hayes is a freelance writer, published author, and avid tea drinker. He blogs about lifestyle topics at StocksForTheWeek.com, Plum Deluxe, and other sites.