Millennials and Investing: Taking Control of Your Finances Before it's Too Late

Tell a millennial to invest in his or her future and you will most likely get an eye roll, or, for the more sophisticated and mature, a dry snort. They just don’t invest. Chalk it up to staggering student loans increasing every year, collectively owing $1 trillion, up from only $461 billion eight years ago, according to a study by the Federal Reserve Bank of NY. Or to the two financial crises they’ve lived through while watching their parents struggle to make ends meet, or just to a lack of education on the matter. Call it what you want, but the fact remains that a staggering 93% of millennials are not confident enough to invest. And that means they’re making a major mistake.

With Social Security reserves shrinking, the population growing, and an economy that’s hiring far fewer college graduates than years before, it’s imperative that when those millennials do find a job, their Millennials - Confidence in Investingvery first payment (post rent, student loans, and other living necessities) is to their retirement fund. But the how of going about planning for your retirement remains to be seen.

If you’re not quite ready to jump into a program – maybe you don’t have the money set aside or you’re still wary of investing at all – MyRetirementPlan is providing a crash course on investment in your 20s. Take a seat, and let’s get started.

Step 1: Key words and terms of the investment landscape

Your best friend will be Investopedia while you muddle through this process.

  • 401(k): A word thrown around often in new jobs and among your parents, but do you really know what it is? Here you go: it’s a tax code, a line number (401(k)) from the IRS that “allows employers to establish a company-sponsored retirement plan,” (Smart401k). The company you work for will determine what investment plans they offer, usually a defined benefit or a defined contribution.
    • The idea behind a 401(k) is that you contribute, your employer contributes, and when you retire, you can access that money to get you through the rest of your life.
  • IRA: Individual Retirement Account. You can’t withdraw these in full until you’re over 59 and a half. However, if you don’t want to touch the money until you’re ready to use it for retirement, this option can lower your taxable income in the year you contribute to it. In turn, you get to qualify for other tax breaks like the student loan interest deduction due to your adjusted gross income.
  • Roth IRA: You can take these contributions out whenever you want, penalty-and tax-free, but not the gains earned on the contributions until age 591/2. If you are over age 591/2, your first contribution needs to be at least 5 years old to begin taking out distributions that include the gains earned on your contributions.

Step 2: Make a Spreadsheet.

Break out that Excel page and get to work on some tables, graphs and budget drafts. Figure out where you’re spending your money, where you want to save it and where you want your retirement funds allocated.

Step 3: Open the account

…and start contributing, to that, your debts, and your 401(k). Make it a habit to contribute the maximum amount to your 401(k) up to your employer’s match, because your employer is essentially giving you free money for after retirement. Take full advantage, because the more you contribute, the more they do, too.

Step 4: Use the tools and resources available on the web

First and foremost, remember to use MyRetirementPlan to understand and take control of your personal finances and investments. Planning now can save you thousands later, improve your quality of life, and ensure that you won’t be working through your 60s to pay for the mistakes you made in your 20s.