Money Milestones: This is how your finances should look in your late 20s
By Alessandra Malito
Published: Jan 5, 2018 12:52 p.m. ET
Just get started, whatever you do
Warner Bros/courtesy Everett Collection / Everett Collection
Now's the time to get your financial house in order.
AlessandraMalito
As soon as Tsering Yangchen, a 25-year-old publicist in Minneapolis, started her first job out of college she signed up for her company's 401(k) plan, meeting the employer match and contributing 7% of her salary.
When she left that job for a new one, where she wasn't able to enroll in the 401(k) plan for a year, she took matters into her own hands, signing up for an individual retirement account and making contributions directly from her checking account. It's been a year, and she's now signed up for her 401(k) plan too.
Yangchen was inspired to save for retirement after discussions with her boyfriend and his father, both in finance, and exemplifies what most millennials are encouraged to do: just get started.
Read: This is how your finances should look in your 30s
Millennials are at the greatest advantage for retirement saving — they have time on their side, experts say, and their money earns compound interest, which is interest earned on the money they put in as well as the interest that money earns. Granted not all millennials may have the ability to put away as much as Yangchen can, but any contribution counts — even just a few dollars. One mobile investing platform, New York-based robo adviser Stash, suggests investors start with just $5 a month as they become familiar with investing.
When you're in your 20s, it makes sense to weigh short-term goals more heavily than retirement, said Douglas Boneparth, a financial adviser and president of advisory firm Bone Fide Wealth in New York. That's not to say you shouldn't be saving for retirement — you should be putting in at least enough money to meet a company match, since that's essentially free money, and then prioritize short-term goals, he said.
See: How our 'everyone gets a trophy' culture can lead to financial ruin for millennials
There a long list of short-term goals millennials may want to accomplish: making a dent in student loans, which are highest for millennials than any other generation, saving for a first home and possibly getting married (which can cost upwards of $35,000 for some).
Read: This may be the biggest financial mistake young people are making
"No one tells you what's more important," Boneparth said. For Jacob Lumby, 27, and his wife Vanessa, 26, bloggers at personal finance site Cash Cow Couple, it was more important to max out their retirement accounts and live a frugal lifestyle so that they can "get ahead later in life," Lumby said. They bought a mobile home for cash, so there are no housing payments, and share a car. At this age, everyone is evaluating what's most important for them (for many, that means experiences) but creating solid savings habits will prove beneficial down the line. "Not everyone is going to go the same route to save a lot in their 20s — some would rather not, and that's fine," Lumby said.
See also: This millennial makes money teaching other millennials how not to be broke
What anyone in their 20s can do, however, is find consistency in their money habits, such as saving for the future, allocating income toward big life goals as well as emergency situations and paying down debts. Millennials seem to be pretty good about saving, for emergencies and retirement, but still about a third of consumers say they might not be able to afford an unexpected $2,000 emergency. One way to save for both retirement or an emergency is by investing in a Roth individual retirement account, where money can be withdrawn penalty-free if it's just the principal and not the interest earned on the assets, Alex Rupert, assistant portfolio manager at Laurel Tree Advisors in Cleveland, Ohio.
And while working on generating more income, such as doing a good job at work, asking for a raise or partaking in side gigs, you should also focus on what you can easily control, such as the money you're currently using, Boneparth said. Cait Flanders was 29 when she decided to meticulously analyze her spending habits — she threw away 75% of her stuff, paid off $30,000 in debt and went on a two-year shopping ban, all while tracking her weekly spending. "Re-examine your lifestyle," Boneparth said. "Build that discipline so that when you do receive additional income, you can afford to save it toward your goals."
Wondering what your savings should look like during a major money milestone? Send your questions to personal finance reporter Alessandra Malito.
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Alessandra Malito
Alessandra Malito is a personal finance reporter based in New York. You can follow her on Twitter @malito_ali.