How you can fight back in the face of “incredible shrinking incomes”

The Atlantic has recently been publishing an interesting and informative series of articles on personal finance trends among young adults. I’ve been enjoying them as a casual reader until an article today convinced me it was time to throw my hat in the ring.

“The Incredible Shrinking Incomes of Young Americans,” an article written today by Derek Thompson, explains that wage growth for workers between 25 and 34 has actually decreased relative to inflation. Relating to another article he wrote, about lower rates of saving and home purchases among millennials, he says that this real wage decline makes it easy to see why young adults are saving less.

While I found the article intriguing, I have a serious issue with it. I don’t think I’ve ever read a more pessimistic article about young adults and their money. Yes, the situation sucks for many young adults, and many of us are in serious debt. But the article makes me feel like there is no hope and we might as well all give up now.

Wages for Workers aged 25 to 34 between 2007 and 2013 according to The Atlantic
(Note: I also have issues with the article’s data. I’d like to see more details behind the numbers, such as a college grad vs. non-college grad figure, but I’ll ignore that for now.)

Obviously, I don’t share the giving up attitude. I believe that in many cases, there’s at least one thing you can do to improve your financial situation. All of my tips may not apply to everyone who reads the site, but one of them might help. So I’m going to end that doom and gloom article on a more positive note, and point out a few changes you can consider implementing to help deal with the real wage issue.

Make a New Year’s resolution to create one money saving habit

One of the best ways to deal with less money is to spend less. (Duh). But I also realize that spending less money can seem incredibly daunting, or even impossible. So I’m not going to suggest you look for any big sacrifices to make. That’s not realistic. What I will ask is that you examine some of your small money spending habits.

We often don’t think about it, but small bits here and there can add up. You might have some money spending habits that you don’t even realize! Here are some small habit changes you might consider to spend less:

Cut cable and get a Netflix subscription instead
Pack your lunch instead of eating out a few times a week
Use a free online fitness video, like Fitness Blender, instead of paying for the gym or a boutique class
Reduce your Starbucks addiction down to a once per month special treat and brew your coffee at home in the mornings

These are just a few examples, and it’s even possible that you’re doing everything you can to spend less already. But if you need help identifying money saving habits you might find it useful to track your spending with a budgeting template, or you can set up a coaching session.

Make your money work for you

If you employer isn’t paying you more relative to inflation, there are ways you can improve your income on your own. One way is to create passive income from your savings.

If you stick all of your money in your checking account and just let it sit or spend it, it doesn’t do anything for you. But if you can put it in a savings account, or in the stock market, you can generate interest, dividends, or profits on your cash. That means you’re being paid just to let your money sit somewhere.

I’m not saying you start should make crazy trades with your savings, but think about opening an emergency fund in a high yield savings account that pays you 1% interest, putting money in stock market index funds like SPY, or buying stocks that pay dividends (but make sure you fund your emergency fund before anything else). High yield savings accounts and index funds are passive and require no work other than setting up and funding the account. And while selecting dividend stocks takes some research (my tips here), these are often stocks you can hold for a long time without doing anything to them.

While putting extra money away might be hard, even a little bit of savings can create extra cash for you in the long run. If you invested just $25 a week, here’s what you would have in 10 years based on varying levels of returns:

Automate your savings

If the section above was old hat to you and you already know you should be saving, think about turning your savings contribution into a regular, but mindless, habit. That could mean increasing your 401k or IRA automatic contribution by 1%, or setting up an automatic withdrawal into your emergency fund each month.

A 401k contribution is great because it happens before you get your paycheck. You might not even notice a big difference (or be tempted to spend the money) if it never hits your bank account.

I use automatic deposits to add money to my emergency fund every month, but they’re not for everyone. If you worry that sudden withdrawals will cause you to overdraw your account, skip this step. Better to save less often than to pay overdraft fees.

Ask for a raise

You never know unless you ask, especially if you feel you aren’t being fairly compensated. Here are some tips, especially for us women.

Those are just a few ideas, and they don’t apply to everyone. I just wanted to make sure and point out that while the situation sucks, it’s not necessarily hopeless. Consider if any of the steps above might help your personal finances.