The mainstream media often blames millennials for societal woes and a sputtering economy. However, the truth of the matter is millennials entered the job market at the worst possible time in American history aside from the Great Depression. The Great Recession of 2007 combined with a crushing student loan debt load and a rapidly increasing cost of living made it challenging for millennials to make the American dream their reality.

If you are like most in the massive millennial age cohort, you are undoubtedly wondering how to best save, invest and spend your money for financial success across posterity. Here’s how to do exactly that.

To Spend, Save or Invest, That is the Question

It is often said that those in the prime of their career should spend half their income on essentials, one-quarter on saving/investing, and another quarter on discretionary items and experiences. However, increasing inflation combined with the cost of living hikes that have no end in sight makes this guidance a bit outdated. Instead of dedicating one-quarter of your entire earnings to discretionary spending, it is better to dedicate 15% to dining out, fun and travel.

Elevate your savings and invest to 35% to help offset inflation and your hard-earned money will grow even if the dollar continues to be devalued with ongoing inflation. However, this is not to say every single millennial can spend half of his or her monthly income on essentials such as housing, food, student loan payments, and clothing.

If you live in a part of the country with an egregiously high cost of living or if you carry a large student debt load, it will be that much more difficult to pay for the essentials of life while redistributing 35% of your income to savings and investments and another 15% to discretionary spending. If possible, spend the years immediately following college graduation living with your parents or other relatives so you can start to build your financial nest egg by quickly paying down student loans.

Emphasize Debt Reduction Over Discretionary Spending

Millennials are unfairly burdened with exorbitant student loan debt that outsizes that carried by previous age cohorts including those in Generation X and baby boomer demographics. Recognize the potential for this financial obligation to become punitive in the form of accumulated interest and pay it down as quickly as possible, even if it means pulling money out of your funds allotted for discretionary spending.

Sacrificing short-term fun for financial freedom in the years ahead ultimately sets the stage for you to enjoy debt-free living in your 30s, 40s, and beyond. The feeling of living without the black cloud of student loans hanging over your head is absolutely invaluable. So don’t assume the supposed tried and true 50-25-25 rule pertaining to necessities, saving/investing and discretionary spending is suitable for your unique financial situation. Unless you didn’t have to take out student loans, there is no reason to spend one-quarter of your monthly earnings on activities, eating out, and traveling.

Live well beneath your means when you are fresh out of college or trade school, attack your student debt, auto-debit, and credit card debt, and you’ll gradually minimize your financial obligations to creditors, empowering you to start saving and investing a considerable percentage of your paycheck early in life.

Saving Vs. Investing

Let’s shift our attention to how much millennials should save and invest. There is no guarantee Social Security will be around by the time millennials retire. Though millennials will certainly pay into Social Security for decades to come, it might become insolvent and potentially eliminated altogether, especially if a universal basic income is implemented in the decades ahead. In other words, it is in your interest as a millennial to begin saving and investing as soon as possible.

When in doubt, lean toward investing as opposed to saving as investing is likely to outpace inflation. Though the money in your bank savings account will increase in value, the added value will be nominal as savings account interest rates are absurdly low. The money in your bank savings account or other savings account will inevitably lose value as time progresses as a result of inflation that has no end in sight. Even if inflation slows, it won’t end altogether as money gradually loses as the federal government prints more currency across posterity.

Instead of allowing your money to gradually lose value sitting in a bank account as inflation continues to increase, invest the vast majority of the money you do not spend on essentials and discretionary items/experiences. Though it is financially prudent to have an accessible financial nest egg in your savings account, holding one-third or more of the money you dedicate to saving/investing in an interest-bearing account as opposed to stocks, mutual funds, ETFs, or other investments, is a mistake. Redirect two-thirds or more of the money you do not spend each month to investments.

You can mitigate the risk inherent to investing by spreading out your investing dollars across different investment vehicles. Examples of investment vehicles include:

  • Stocks
  • Bonds
  • Money market accounts
  • CDs
  • ETFs
  • Mutual funds
  • Cryptocurrency
  • Real estate

Diversify your investments in terms of risk level as well as asset categories and even geography to mitigate risk all the more. Make consistent contributions to your 401(k), Roth IRA and other investment accounts every single month without exception. It is a mistake to assume you can time the market by holding the vast majority of your money in a savings account and shifting it into stocks or other investments when the market declines. A large decline might not occur for several financial quarters or even several years.

Instead of trying to time the market just right, invest a specific percentage of your monthly earnings into diverse investment vehicles every single month without exception. This measured and careful approach guarantees you establish positions and add to current positions regardless of whether they are peaking, in a trough or somewhere in between these two extremes.

Take Advantage of Your Employer’s Matching Contributions While You Can

If you are lucky enough to work for an employer that matches your 401(k) contributions, max out those contributions every single month. Those matching contributions are free money for retirement. Keep in mind, you might not be able to segue to another employer that also matches 401(k) contributions if you lose your current job. Furthermore, every millennial should be aware that Milliman.com has reported slightly more than 25% of those in the age cohort do not have access to a retirement plan sponsored by their employer. Nearly 50% of millennials do not have access to an employer-sponsored retirement plan.

Seize the opportunity to take full advantage of tax-advantaged retirement accounts, max out your contributions to trigger your employer’s matching contribution and your money for retirement will grow that much faster. If your employer doesn’t provide a 401(k) plan, you can use an IRA, an acronym that stands for an individual retirement account. Though this account has a lower cap than the 401(k) plan, it still empowers you to invest for retirement with taxes deferred. Continue to save and invest at least 20% of your monthly paycheck and you’ll reach a 25 multiple of your yearly income in about 40 years’ time.