What to do in your 20s and 30s to be set in your 60s and 70s

• Millennials should start saving as early as possible to earn compound interest over three and even four decades.
• It's wise to automate your savings by setting up contributions every pay period to both a 401(k) retirement savings plan and an emergency savings fund.
• Student debt can wait to be paid off, because it will devalue over time as your income rises.

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There's no time like the present to start planning for retirement, especially if you're a millennial. Because time is on your side when it comes to compounding interest, the earlier you start saving, the better off you'll be decades down the line.

Retirement might seem like too distant a milestone to prioritize in your 20s and 30s, what with tight budgets and juggling expenses like rent, student loan repayments and discretionary spending. But experts say starting to set aside money and developing good savings and investing habits early is the key to financial success in your 60s and 70s. 

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1. Create your household budget

To protect against spending beyond your means, lay out all of your expenses and determine how much to allow yourself to drop into each major spending category. The 50-30-20 ratio, popularized by Senator Elizabeth Warren in her book "All Your Worth: The Ultimate Lifetime Money Plan," is the classic approach.

Earmark 50% or less of your income for so-called "needs," including rent, groceries, monthly student loan payments, utilities and daycare; 30% for "wants," like entertainment, dining out or upgrading to a fancier car model or higher-speed internet; and 20% for savings. 

• 50% needs, including utilities, groceries, insurance
• 30% wants, like a Netflix subscription, dining out, or new clothing
• 20% savings for retirement, emergencies, consumer debt payoffs

Another good rule of thumb is to avoid comparing one's own spending habits to those of one's peers. "It's so easy to slip into thinking, 'well, all of my friends are buying $300,000 houses so I guess I should be doing that too,' as opposed to, 'maybe my friends don't know what they are doing and I can do it better,'" said Katie Brewer, a certified financial planner and the author of Your Richest Life. "Make sure you compare yourself to your plan and what is valuable to you and not necessarily what all your peers are doing." 

2. Save enough "so that it's a little uncomfortable"

Should you start out in your 20s by saving 5% of your income annually? 10%? More? It can be hard to abide by a strict income-to-savings ratio, but you can build up to it over your 20s and into your 30s. Kirk Chisholm, wealth manager at Innovative Advisory Group in Lexington, Mass., recommends saving enough money each month "so that it's a little uncomfortable." 

"They might feel uncomfortable now, but 10 to 15 years later when they have $30,000 to $40,000 in their accounts, all of a sudden that's a really good decision they made, even though it didn't feel like it in the moment because everyone likes instant gratification," he said.

Other experts recommend setting aside at least 10% of your savings starting in your 20s. A savings goal of 15% is even better, according to Brewer. "If you start doing 15% in your twenties, you'll really be on track," she said.

Compound interest — basically, interest atop the interest and dividends that are reinvested in your savings — will help your retirement savings grow exponentially the years.

"Consolidate as much as possible so you can save and make the most of your money, because the earlier you save the more compound interest you will earn," said Ash Exantus, director of financial education and financial empowerment coach at BankMobile.  "If you wait until you're in your 40s, you lose all that time and money you would have earned from compound interest."

3. Tap the "free money" in your employer's 401(k) savings plan 

Andrew Schrage, co-founder of Money Crashers Personal Finance, recommends making the savings process as "turnkey" as possible by automatically contributing to employer-sponsored 401(k) plans, which are offered by most companies. (If there's no 401(k) at your workplace then open your own IRA as a retirement savings vehicle.)

These types of accounts automatically deduct a specified pre-tax amount from your paycheck each pay period.

"This strategy will force you to stay disciplined," Schrage said. "If you're contributing 10% of your $4,000 monthly gross pay to your 401(k), that's $400 in retirement savings in one account, without any ongoing action required on your part."

Better yet, most employers match employee contributions up to a certain dollar amount. "A match is effectively free money," said Chisholm at Innovative Advisory Group. "If you put in 3% (of your salary) and they give you 3%, you doubled your money and all you had to do was put it in, you didn't have to worry about how you invested it. Anybody who is not doing that needs to get their head examined because it's the easiest money you'll ever make."

4. Like Netflix, only for retirement

Think of saving for your golden years like you would paying for a subscription to a service like Netflix, says Jim Mahaney, vice president of strategic initiatives at Prudential. "It's automatically charged to your paycheck, just like Netflix is automatically charged to your credit card," he said.

Schrage recommends treating savings like an essential expense on par with rent, utilities and groceries, and parsing the money. "Separate your savings into at least three buckets: emergency, non-emergency, and long-term (retirement)," he suggested. "There are many advantages to doing this. Among the most important is keeping your retirement savings distinct from your short-term emergency savings so that you don't have to tap the former during a temporary rough patch."

5. Don't rush to pay off student loans

Student debt stands at $1.46 trillion, with the typical monthly loan repayment equaling about $400 per month, or $4,800 per year. Millennials who carry student loan debt tend to want to ease that burden as soon as possible, but would do well to consider how else additional repayments could be otherwise invested, financial experts say.

"The nice thing about debt is it devalues over time. Your assets will appreciate over the long term while your income rises, so paying down debt later in life makes it easy. If you pay it down earlier, you are missing opportunities to save and build up an asset base which you can invest in other things," Chisholm said.

High-interest credit card debt, on the other hand, should immediately be taken care of, he said. "If you are carrying credit card debt, at say, 15% of 20% APR, your investment returns simply will not keep pace over time and you'll end up net negative. Use your excess dollars to pay down your credit card debt immediately," Chisholm explained.

Lastly, don't forget to reward yourself for meeting your savings goals.

"Set aside a small buffer in your budget each quarter for a nice dinner out, a show, tickets to the ball game — whatever's going to motivate you," Schrage said.

In:
• Millennials
• Student Debt

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