Millennials have some tough choices—whether to focus on digging themselves out of debt they incurred for college, or to sink some serious money into future needs like a home purchase or a retirement account.

That’s according to a USA Today report, which points out that while the generation is mostly getting by on their salaries, it’s not as if what they make is giving them much wiggle room when it comes to focusing on the past (those loans) or the future (house, retirement, etc.). After all, the money will only go so far.

Given the effect of compounding on a retirement account, even a small amount saved now can make a difference 30-some years from today, but on the other hand, the need to avoid insomnia over how much that compounding factor is eating away at other goals by augmenting the balance of unpaid student loans means that there’s some careful calculating to be done.

And when it comes to buying a house, there’s the same dilemma—although if they’re planning on moving around for a bit before settling down, it’s probably better not to put money into a house that could either reduce debt or build a retirement account—especially if there’s any indication that home prices in the area might not continue to appreciate.

Calculating the interest rates on mortgages can be a useful way to decide whether a house is in the immediate or the more distant future—especially when compared with the interest rate on those student loans and other debt. And while market returns, as everyone learned to their sadness during the Great Recession, are far from guaranteed, a retirement account that provides an employer match is something to be coveted.

According to Kristen Robinson, senior vice president of emerging investors at Fidelity, there’s a way for millennials to approach finances when they’re not quite sure which leg of the stool they want to tackle first.

In the report, Robinson suggests that the first thing on their agenda should be an emergency fund with 3–6 months’ worth of income. Other things can come after that.

The 401(k) should come next, she suggests, particularly making sure to save enough to take full advantage of an employer match. “If you don’t,” she says in the report, “you’re literally leaving money on the table.”

Next should come paying down debt, particularly high-interest debt like credit cards. After that come student loans, provided their interest rates are lower. And whenever it’s possible, millennials should start boosting those retirement account savings a percent or more at a time, until they hit the max—Robinson suggests they gradually increase the amount until they’re saving 10–15 percent of their income toward retirement.

And the house? Robinson suggests building a separate house purchase fund via a direct deposit straight from the paycheck into a separate account—if savers don’t see the money before it’s safely ensconced in an account, they won’t miss it (as much).

And it won’t be in the checking account where it’s all too easy to spend it before getting to that goal: a home.

Instant Insights /

Millennials weigh student loans, retirement savings against home purchase

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