It’s time for the next millennial money blunder in our series. Everyone knows saving for retirement is important, right? You hear it all the time, from your parents, in the news, from us. Why then is it so darn hard to get started? Well, life happens to you, bills start piling up, and slowly but surely time slips by with no progress or action on saving. Or you’re so excited to have real income as a college grad that you put saving on the backburner. Or you think it’s for old people, and you have so many other things to worry about right now.

Any of this sound a little familiar? This is the story of our next fictional millennial, Sam.

The background story:

Sam graduated from college in 2005 with a business degree. He bartended for a few months while he looked for a job. Finally, in August, he landed his first full-time position with a local marketing firm. He was thrilled because the pay was good, and the benefits package was even better. Sam had access to the company healthcare plan, vacation, sick leave, and a 401(k), which offered a 3% match for all eligible employees. Fantastic!

The first few months in the real world:

Sam started living it up with his newfound income. He was so used to barely making ends meet in school that he couldn’t wait to have more freedom with his finances. He could count on a paycheck each month, so why not treat himself? Sam put a new wardrobe on his credit card to the tune of $2,000, and planned to pay that off in a couple months. He was finally able to say “yes” to his friends when they wanted to go out. With a city full of trendy bars, fantastic restaurants, breweries, and weekend entertainment right at his fingertips, his spending steadily increased. Each paycheck was a bit shy of what he needed. He figured with the annual holiday bonus and raise his coworkers told him about, he’d pay off his credit card at the start of the New Year. Sam would be eligible for the 401(k) the following February, and he was all set to sign up for that soon too.

Then the unexpected happened:

A year later, Sam took a trip to the Caribbean with his girlfriend to celebrate their anniversary, and maxed out his credit card. His student loan payments had kicked in too. Then, to top it all off, his Honda Civic finally bit the dust. Sam figured it was time for an upgrade anyway, so he took out a sizable car loan. Unfortunately, having never had to handle a monthly car payment, he soon realized he overspent. Sam was using every penny of his paycheck to make ends meet when his company’s annual benefits renewal rolled around. He decided to delay signing up for the 401(k) a while longer. “What’s the hurry. I’m only 25. I have all these other things to straighten out first.”

Five years down the road:

Fast forward five years. Sam has his credit card debt under control for the most part, thanks to being disciplined about his spending and getting a couple pay raises. He also started contributing to his 401(k) the year before, and is receiving his company match to boot. Things are looking up in his finances overall, but in hindsight, Sam wishes he had done things a little differently.

What he missed out on:

• Building a retirement saving habit: Sam should have signed up for his 401(k) as soon as the company allowed it. Even contributing $50 a paycheck would have been a solid start. People tend to spend whatever hits their bank account, and quickly get accustomed to living within those means. That’s why automated saving is so important.
• Compounding interest: A small amount of saving in Sam’s early 20s could have made a huge difference long term. Why? Because the interest he’d earn would earn interest too. Starting to save earlier in his career would have given him a much larger retirement nest egg to build on over time.
• The company match: Access to a company match is an enormous benefit to employees. So long as you meet whatever minimum savings rate your company requires, they’ll match a percentage. That’s money from your employer’s pocket (instead of yours!) straight into your retirement savings.

Our money mishaps series keeps on trucking next with…underestimating the cost of having kids. To be continued!