By Jonny Lupsha, News Writer

To retire at age 65, millennials will need to set aside 40 percent of their pay starting now, CNBC reported. Earlier generations were told to invest just 15 percent of their pay into a retirement fund, but times are changing. There are several ways to get started.

According to the CNBC article, the standard goal of living on half of your current income during retirement would now require the average person to set aside 40 percent of their paycheck for 30 years of working. This means that millennials will have to tighten their belts much more than previous generations, which had long been advised to set aside 15 percent of their paychecks for retirement. The biggest factors in this revelation are abysmal projected investment returns in the coming decades—earlier generations enjoyed 10-percent returns while future projections appear between 2 percent to 5 percent—and the looming lack of Social Security funding, which will bottom out in the next 20 years. While setting up your financial future can seem daunting, there are easy steps anyone can take to start off on the right foot.

The Cash Flow Statement

“The first step of a financial plan is to gather financial information,” said Dr. Michael Finke, Professor of Personal Financial Planning and Director of the Retirement Planning and Living Consortium at Texas Tech University. “This information is then used to create three important documents—a cash flow statement, a budget, and a balance sheet.”

A cash flow statement lists your income and your fixed and variable expenditures from month to month. To make one, Dr. Finke said to gather your bills and a checking account statement to estimate how much you spend each month.

“This process alone can be an eye-opener,” he said. “We often have no idea how much we actually spend on food or clothes or gas until we sit down and estimate our cash flows.”

On the other hand, collecting a few pay stubs and accounting for any 401(k) savings will help to estimate your cash inflow. “When you subtract expenses from income, you’ll come up with net savings or a net deficit,” Dr. Finke said. This process is the best first step towards managing your finances and putting yourself in the right head space to plan for your future.

Once you have this piece in place, you can analyze spending choices to set up a realistic budget for yourself and straighten out the balance sheet Dr. Finke mentioned, which is a ledger of all your assets and their values.

Future Planning: Balance Sheets and More

“A balance sheet generally consists of a ledger with all assets listed at their current net market value, sorted into three categories—monetary assets that can be liquidated for short-term spending needs, investment assets whose primary purpose is to fund future goals, and tangible assets like houses and cars,” Dr. Finke said. “For most Americans, their largest assets are their home and retirement accounts. Not surprisingly, mortgages are their biggest liability.”

In financial parlance, liabilities are debts currently owed. Dr. Finke said that they’re usually split between short-term liabilities like credit cards that can be paid off in the next year or two and long-term liabilities like a mortgage on a home. Balancing your assets and liabilities can be useful for many reasons, not the least of which is showing progress towards your financial goals.

“Changes in the balance sheet should reflect savings and borrowing decisions made when you create a budget,” Dr. Finke said. “If you aren’t moving towards savings goals, then you may need to adjust the budget to stay on track.”

Finally, balance sheets can help us gain perspective on financial risk in case of unexpected emergencies or the loss of one of our assets. Rather than panic, we can take a measured look at our near future and what we need to do to make up for the financial loss.

With 35-year-olds having to save nearly triple the amount per paycheck as compared to earlier generations, prospects of retirement seem bleak at best, if not impossible. Low investment returns, Social Security dwindling, and other problems will change the face of the workforce for the next 30 to 50 years. However, starting a retirement fund early and getting a hold of one’s financial outlook offers a slim but tangible chance of getting ahead.

Dr. Michael Finke contributed to this article. Dr. Finke is a Professor of Personal Financial Planning and Director of the Retirement Planning and Living Consortium at Texas Tech University. He has doctoral degrees in Consumer Science from The Ohio State University and in Finance from the University of Missouri.