“Save this for a rainy day.” It’s a phrase we’ve all heard from relatives as they hand over a red envelope or a birthday card with a shiny check. We smile, nod our heads in blind agreement, and quickly spend what we were supposed to save.
For most teenagers, saving—especially for retirement—is a foreign concept. It’s not surprising that Time magazine found that one-third of Americans reported having nothing set aside for retirement. More staggeringly, millennials were 40 percent more likely to not have retirement savings at all than Gen X-ers.
With infant careers, it’s easy for young adults to think they have more than enough time to prepare for their golden years. However, establishing savings earlier helps build a larger and more stable retirement fund later. With a more comfortable future in mind, here are Mochi’s tips for better financial habits.
Work Toward a Goal
Keep track of your spending by setting specific goals. For example, if you want tickets to see your favorite artist, find out the cost and create a payment method. Then, instead of purchasing a new top or treating yourself to a Starbucks drink, put that money toward a concert fund to reach your target.
Want vs. Need
Despite what you may personally believe, your parents are right about whether you simply want or actually need something. A good way to distinguish between the two is to create a mental checklist. If you can think of three expenses that are more essential than the item being debated, it is more likely a want.
Start a Savings Account
When you’re a teenager with no income, a bank account can be your best friend. Student bank accounts can vary from bank to bank, but all savings accounts can help provide a solid foundation for a better future.
Bank of America offers joint accounts between a minor and parent or guardian. These accounts include an interest amount and an annual percentage yield—basically, you make money by saving your money.
Corporations usually offer 401(k) plans while smaller businesses or non-profits offer a 403(b). Both plans are designed for one reason: saving for retirement. Depending on your company benefits, your organization could match your salary from 3 percent to 10 percent—which is literally free money. If you can, opt to save the maximum for the biggest benefits.
But you don’t have to be in a full-time position to start a retirement plan. Individual Retirement Account (IRA) is a retirement investment and, essentially, a savings account. While IRAs do not have an age requirement, there is a maximum contribution of $5,500 a year. Still, the best part about IRAs is that the money in these accounts grows tax-free.
There are two main types of IRAs: traditional and roth. Traditional IRAs are taxed when the money is drawn in retirement while Roth IRAs are initially taxed. With a Roth IRA, money can be left as long as you want, but with a traditional IRA, withdrawals must start by the time the account owner reaches age 70.5. According to the New York Times, IRAs can take $5,000 of earnings from a few summer jobs at age 19 to $52,006 by 67—which is truly a significant amount.
Saving for retirement can seem daunting and unnecessary when you’re young, but it’s a smart investment. A dollar today could mean relaxing in a beach house tomorrow. Whether you’re starting your first summer job or are years away from retirement, good financial habits are important for all ages.