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In an earlier article, we covered that millennials are late to the retirement game. We explained how they can begin saving for their later years. What we did not cover is the number one reason millennials do not save for retirement: student loans.

An entry level salary may not seem adequate enough to save for the future. Most students can’t afford invest in a pension plan, pay off student loan debt, and afford living expenses. We understand that this can seem overwhelming for millennials; however, it is possible to do all of these things on an entry level salary. Saving and investing in your future, especially, should not be overlooked during your twenties.

Paying Off Loans AND Saving For Retirement

Your first step to saving for retirement and paying off your student loans is to set up automatic transfers. If you don’t have a savings account, open one! Setting up an automatic transfer of a portion of your paycheck to a savings account or retirement account can help you begin to save money for your future. It can also save you time worrying about how much you will set aside.

Additionally, you won’t be in an entry level job forever. So, you should plan to divert a larger amount into your savings after you get a raise. The reason for this is simple. You’ll be making more money and you should be practicing saving more rather than spending more. This is called avoiding income dependence, an economic version of keeping up with The Joneses.

Don’t believe us? Look at some real life examples of pro athletes losing money or lottery winners going broke. More money means creating more financial obligations and getting used to a lifestyle that may not be sustainable. By practicing saving rather than spending you are creating a sustainable lifestyle and planning for your future.

You don’t have to be a lotto winner to manage your wasteful spending habits. You simply need to be resourceful. Remember: all of the money in the world doesn’t matter if you aren’t money-savvy.

Alternatively, you can divert more money into your savings and more money into your student loan payments. Then, once you pay off your loans, you should take the money you used to pay them off and add it back into your savings or retirement accounts.

Dollars Vs Percentages

Breaking your lifestyle dependence can be difficult, especially in your twenties and thirties, when the natural inclination is to spend rather than to save. You don’t have to sacrifice your social life to save for your retired years. You simply have to change the way you look at saving and make the switch from dollar increments to percentages.

For example, say you got a raise and you’ve invested a larger dollar amount into your savings and retirement this year than you did in the last year. You may be surprised to find that a larger dollar amount does not necessarily mean you saved more money. In fact, if your income increase was greater than your savings increase, your dollar contribution might actually be a lower percentage of your income.

When saving, focus on putting aside a higher percentage of your income each year. Rather than placing in a larger dollar amount. At first, you may want to dedicate a higher of your income percentage to repaying your loans, but as you pay those down, you can transfer that percentage into your pension plan.

This way, you’ll build quite a nest egg and avoid the income dependency that comes with raises. It’s all about investing more into your debt repay and your future and learning to live on less.

Less Is More

It may be taboo for us to say this, but you don’t need a bunch of money to retire successfully. The idea of retirement is based off of the idea that the more you save, the better off you’ll be and this is, for the most part, is true. It is always good to have an emergency fund on hand for unexpected medical and life expenses.

The most retirement advice is to learn to live on less money now. Breaking income dependence can help you focus more on the important things: saving for your future and paying off your debts. At the end being debt-free in retirement is more important than living as a millionaire during your later years.

Make More Money

If you’re new to saving, you may be worried that your income will not be enough to cover your living expenses, savings and debt repayments. This is where side projects and freelancing gigs come in handy.

Not only will freelance and side jobs provide an additional source of income to put toward your savings, but they can help you pad your resume, garner industry experience, hone your skills and earn a higher salary to pay your debts faster.  

Bottom Line

The one thing to remember about paying your student loans and saving for retirement is that both can be done on any budget. It is simply a matter of reallocating your finances and changing the way you think about saving.

For more information, be sure to check out our blog or call one of our trusted financial advisers today!