How Millennials Can Save For the Future
Retirement for millennials is a long way off, and most people in this age group are planning for more immediate concerns such as buying a house or having children. Those are worthwhile goals, but it’s still possible to save for retirement and other future needs even if it involves cutting back a bit on some spending.
Pay Down High Interest Credit Card Debt
When it comes to millennials and money, one good way to save for the future is by paying down high-interest credit card debt. Make it a goal to pay off your credit cards in full each month. You are simply enriching banks when you pay high interest rates. Once you have eliminated high-interest debt, you can get ready to save for the future.
Individual Savings Accounts
Tax-free individual savings accounts are an excellent way to save for the future. Currently, the maximum amount you can save in an ISA is £20,000 annually. There are four types of ISAs: Cash, stocks and shares, innovative finance and lifetime. Anyone aged 16 and up can invest in a cash ISA, while those 18 and over may invest in stocks and shares and innovative finance ISAs. You can add money to one type of ISA fund each year. Cash ISAs include building society and bank accounts, while stocks and shares allow you to invest in company shares, government and corporate bonds, investment funds and unit trusts. The innovative finance ISAs may especially appeal to millennials saving money, as they permit investing in peer-to-peer loans and crowdfunding debentures. The latter is investing in a business by purchasing its debt.
The lifetime ISA, invested in stocks and shares, is available to those aged 18 to under 40, and this ISA allows you to either buy that first home or save for your later years. With a lifetime ISA, you can invest to £4,000 in each year until age 50, with the government adding 25 percent up to £1,000 annually. After 50, you can no longer add to the lifetime ISA or receive the bonus, but your savings still earn interest, dividends and capital gains, on which you pay no tax. One caveat: If you want to take money out of a lifetime ISA before age 60, you’re subject to a ginormous 25 percent charge unless the money is used to buy a first home or you have been diagnosed with a terminal illness and have less than a year to live.
State pensions will barely cover basic living expenses, so you may want to consider investing in a personal pension or participating in a workplace pension scheme. With a workplace pension, a portion of your pay is invested automatically each pay period. Employers generally add money to your pension scheme as well, and you will receive tax relief as long as your employer takes your pension contribution out of your pay prior to deducting your income tax. If you opt for a personal pension, you can choose between a stakeholder pension, which meets certain government requirements, and a self-invested personal pension. With a SIPP, you are in charge of choosing the investments included in your pension fund.
Investing apps and robo-advisers appeal to millennials, as they gamify the investing experience. Brokerage giant Charles Schwab reports that almost 25 percent of millennials use robo-advisers to make investment decisions. Some robo-advisers let you get started with as little as £1, so it’s a way to start investing even if you have little spare money. Robo-advisers let you choose the type of investing strategy you prefer, whether conservative, aggressive or in the middle, and put together a diversified portfolio.