How to balance debt and invest for retirement

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Who could say no to free money? Generation Y. Fewer than one-third of all eligible workers between the ages of 18 and 25 participate in their company’s retirement plan, according to a survey by human resources research firm Hewitt Associates. They’re losing free, steadily increasing funds from employer-matched contributions.

It’s not hard to see why retirement savings has taken a back seat to other obligations. In the past decade, the average level of debt for a graduating college senior has more than doubled. Student loan debt tops $20,000 for 2008 graduates, who also carry an average credit card balance of more than $3,200, according to The Project on Student Debt, a Washington, D.C.-based nonprofit organization.

Nicholas Aretakis, author of “No More Ramen: The 20-Something’s Real World Survival Guide,” says this is testament to why it’s important for younger employees to develop long-term savings habits early. “It’s crazy for any employee, even under financial strife, not to save for the future,” he says. “Many feel that they cannot afford to invest when actually the converse is true — they cannot afford not to invest.”

5 tips to savings without going broke now
Save without effort
For most 20-somethings, working two jobs to have a cushy retirement may seem like overkill. Even taking the step of filling out a deposit slip to put money in an investment account requires too much effort.

An easier way to get cash from your paycheck to a savings account is to have your employer directly deposit a portion of your paycheck in your bank or investment account, or have the funds automatically transferred from your bank account directly to an IRA.

“I used to make a savings deposit only when there happened to be extra money in my account, but that wasn’t working,” says Jennifer Downey, a 26-year-old architectural intern based in New York City. “I would deposit every two to three months and the money wasn’t accumulating interest in the mean time. Now as soon as I get paid, $100 a month goes straight into savings. I don’t even count on that money being there.”

Consumers who used direct deposit services saved an average of $1,080 more per year than those who used other savings methods, according to NACHA — The Electronic Payments Association, a Herndon, Va.-based nonprofit agency that oversees more than 18 billion electronic payments per year.