When you're in your 20s, change is a way of life. You're choosing a career, paying your own bills, getting your own place to live and perhaps making decisions about marriage and family.
The more things change, the more important a stable financial foundation becomes. We've listed 10 principles that should be carved in stone for every 20-something. No matter where you are on the pathway to independence, these time-tested guidelines will boost your odds of financial success.
1. Plan ahead
To get where you want to go in life, you need goals and a plan to reach them. Having neither is like driving a car without a steering wheel -- with your eyes closed.Start by asking yourself what you want in your future. Think about the short term (five years or less), medium term (five to 10 years) and long term (20-plus years). Now you're driving with your eyes open. Then take hold of the steering wheel to reach your goals.
Budgeting is a great way to do this. It allows you to see where your money is going so you can make the necessary adjustments to get you where you want to go. Start with "The 60% Solution." Then learn more about how to set up and use a budget.
2. Live within your means
Can't afford something? Don't buy it. That sounds simple, but too many people have a heck of a time following this one and get in over their heads in debt. Borrow sparingly and only for those things that have lasting value, such as a home or an education.Learn to keep spending in check while you're young and you'll save thousands of dollars over the years -- and save yourself a lot of stress, too.
3. Make saving a habit
You work hard for your money, so when your paycheck arrives, why not make yourself the first person you pay? Arrange with your bank to automatically divert part of your paycheck every month into a savings account. That way, you won't have to remember to transfer the money manually, and you won't even miss it when it's gone. Out of sight, out of mind.Your first savings priority is to amass an emergency fund. (See "Why you need $500 in the bank.") Eventually, you'll want enough cash on hand to cover at least three months of your expenses in case of the unexpected, such as a job loss, a medical emergency or car repairs. Once your emergency fund is well under way, you can divide your monthly savings deposit to go toward other goals, too, such as buying your first home, getting a new car or taking a dream vacation.
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4. Pay off your credit cards
If you have a credit card balance, now's the time to rid yourself of that albatross around your neck. Set a goal to pay off all credit card debt before you turn 30 and have other financial responsibilities to tend to.A $2,000 balance at 18% interest would take nearly 10 years to pay off if you made the minimum 4% payment each month and would cost you an extra $1,116 in interest. To pay it off in two years, you'd only need $100 per month to be rid of the debt. For a little encouragement, join the Women in Red Racers, a message-board support group. Then commit to use your credit card only for expenses you can afford to pay off each month (see the second commandment).
5. Start investing
The sooner you start investing for retirement, the less painful it will be and the more money you'll accumulate. (See "Getting rich is simpler than you think.") Let's say a man starts socking away $200 a month at age 25 in an account earning an average annual return of 8%. By the time he turns 65, he'll have $703,000. But if he waits until he turns 30 to start saving, he'll end up with only $462,000. In other words, that five-year delay could cost him almost a quarter of a million dollars (see "The magic of compounding").A Roth individual retirement account is a good place to start, because earnings on your investments will be tax-free. Your employer may also offer a workplace investment plan, such as a 401(k) or Roth 401(k). (See "A tax-free retirement just got closer.") If your employer matches some or all of your contributions, invest in your company plan first -- that's free money you shouldn't pass up.
Check out MSN Money's New Investor Center for a step-by-step guide to start investing right away.
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