How to save for the future when it's uncertain

  • In light of cultural and economic changes, it makes sense that a lot of young people can't easily imagine where they're headed.
  • Here's how to make sure you're prepared for a variety of outcomes.
Business people question marks
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A friend recently texted me that she had spent her entire weekend obsessing over money.

"I don't know what kind of life I want to live, or what I want to save for, or even IF I want to have a car/home/retire," she wrote. "But I want to be as financially set and SAVVY as I can."

I thought about quickly tossing back some of the strategies I've been lucky enough to absorb as a personal finance reporter at CNBC. Make a budget. Open a retirement account. Save what you can. Avoid debt.

Yet I felt that if I began by rattling off those tips, I'd fail to address the heart of her concern — that she doesn't know what she wants to be financially preparing for. That seemed like a more complicated reality to address than if she'd just texted me that she wanted to, say, be a homeowner by 2030. Was it?

"Most millennials don't believe there's any long-term security anymore." -Stephen Brobeck, senior fellow at the Consumer Federation of America

It makes sense that a lot of young people can't easily imagine where they're headed. A Forbes article titled, "The Young and the Restless: Millennials On The Move," describes how it's uncommon for millennial generation members to stay planted in one spot for long. A Gallup survey found that millennials are more likely to hop from employer to employer than prior generations.

"There aren't as many lifetime jobs as there used to be," said Stephen Brobeck, a senior fellow at the Consumer Federation of America.

The goals of previous generations are not necessarily those of millennials: Twenty-five percent of them don't plan on marrying, and 30 percent don't count on having a child, according to TD Ameritrade's "2018 Millennial and Money Survey."

In addition to cultural changes, the economic climate has blown away milestones for many young people. As wages have sputtered, child care, medical and education expenses soar.

Nearly 30 percent of millennials don't expect to retire, and a quarter say they'll never buy a house, the TD research found. "Most millennials don't believe there's any long-term security anymore," Brobeck said.

When an individual's life trajectory is a question mark, it can be harder for her to plan for it, said Sarah Raposo, a researcher at the Stanford University's Life-span Development Laboratory.

Raposo and other Stanford researchers are using virtual reality technology to show people their aging avatars, in the hopes that they develop empathy for their 70- or 80-year-old self.

"People view their future selves like a stranger," Raposo said. "When it comes to being motivated to save money, they just don't feel like they're doing it for themselves."

Stanford University's age progression technology
Stanford University's age progression technology

So what does it mean to strive to be financially set, as my friend wants to be, in the face of uncertainty?

Focus on what doesn't change, said Greg McBride, chief financial analyst at personal finance website Bankrate.com. "There are certain steps that are fundamental to financial security, regardless of the path you ultimately follow," he said.

McBride defines those basics as the following:

  1. spending less than you make;
  2. building an emergency savings account (ideally, six months' worth of expenses stored away);
  3. resisting debt;
  4. saving for retirement.

It's totally normal not to have clearly defined long-term goals, said Carolyn McClanahan, a certified financial planner and founder of Life Planning Partners in Jacksonville, Florida. "We can't predict the future," McClanahan said.

When her clients are unsure of where they see themselves in 20 or 30 years, she said she focuses on their near-term aspirations. That might be paying off a credit card or eventually returning to school for another degree.

It can be helpful to write down those goals.

Carolyn McClanahan
Source: Carolyn McClanahan
Carolyn McClanahan

And the most important reason for saving, McClanahan said, should be on everyone's list: "What happens if I can no longer work? Will I be financially OK?"

It can take a lot of time to be able to answer that question in the affirmative. That's why the importance of starting to save early — no matter how cloudy your future — can't be overstated, experts say.

Here's a quick example of why that is. If you invested $5,500 a year for retirement between ages 25 to 35, you'd have nearly $620,000 waiting for you at 65. That's more than you'd have if you saved that same amount every year from 35 to 65 (which would be around $556,000). That's, of course, because of the power of compound interest.

"Time is the greatest money-making asset an individual can possess," said Ed Slott, a retirement savings expert.

For young people who don't know exactly what they're saving for, a Roth individual retirement account is likely the best place to park your money, McClanahan said. Even though a Roth IRA is technically a retirement account, you can pull out any money you've put in at any point without paying any penalties. (You can easily open one online or in-person at Fidelity, Charles Schwab and elsewhere).

"If you end up not buying a house, now you've got a nice head start on your retirement savings," McClanahan said.

It can be anxiety-producing to sacrifice your quality of life now for the future, but it'll be really encouraging to see your savings accumulate.

Liz Weston
Source: Liz Weston
Liz Weston

You can up your chances of being prepared for whatever lies ahead by nailing down healthy routines now, said Liz Weston, a CFP and personal finance columnist at Nerdwallet.

According to NerdWallet, the first steps to financial security involve creating that emergency fund, taking full advantage of any retirement plan you have at work and aggressively paying down any credit card debt.

Once you've checked those boxes, gradually turn up your savings. You can also invest for goals other than retirement (consider one of the many robo-adviser apps that make doing so easy).

Ponder the deeper questions, Weston said, but don't let them delay you.

"The most important thing is to start," she said.

Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.