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The Basics

Your 5-minute guide to money in your 20s

It might be a cold, cruel post-college world out there, but these 26 suggestions can help warm things up for you.

By MSN Money staff

You're finally on your own. It's exciting, scary and, well, really scary.

First, you'll need a job, but you knew that. A few helpful tips:

  • Don't spend money for a résumé kit; find a free tutorial online.

  • Find out if your university has an alumni chapter nearby. Alumni are a wealth of information and are often eager to help new graduates.

  • Be careful about accepting a job in an unrelated field simply because it pays more. This could delay your career progress or trap you in a field that may not make you happy.

You're hired!

Once you land a job, you'll breathe easier, but keep a few things in mind:

  • You'll probably earn more money than you're accustomed to, but Uncle Sam will take a bigger bite, too. Don't spend your first paycheck before you actually get it. (Get an idea of what your take-home pay will look like here.)

  • Your tax return will become more involved as your salary and investments increase. Plan for deductions. (However, the costs you incur landing your first job aren't deductible.)

  • Remember that your career is your most valuable asset. Manage it better than any other investment.

A place for your stuff

More than 30% of young graduates move home with their parents after college to save money. Do that only if you have the discipline to save and not spend that "extra" cash. Some things to know:

  • If you're new to a city, open a bank account before finding an apartment. Landlords often require first month's rent and security deposit to be paid with a certified check or money order.

  • Consider subletting an apartment for a while. Sites such as can help you find a sublet and give you an idea about the cost.

The key is budgeting

Once the necessities are in hand, develop a budget so you'll know where you're at -- and where you're going. We like "The 60% solution," where essentials come out of the first 60% of your pretax income. The rest goes to long-term savings or debt repayment, short-term goals and fun money. (For another starting point, check out "How to build your first budget.") Other budget items to consider:

  • Basic groceries should cost a single person $150 to $200 a month. You'll spend more if you eat out frequently or buy processed foods and frozen dinners, so learn to cook.

  • Don't put off student loan payments. They accrue interest, and they don't go away. If you ever declare bankruptcy, student loans won't be forgiven. But don't pay them off early, either. Student loan debt usually has lower interest rates than credit card debt. (See "How did student loans get so sleazy?")

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Now's the time to save

You will always find reasons not to save, but you will never again have this much time to save for retirement or a home, so start, even just a little. (See "To get rich, start saving in your 20s.") And for young investors, there's no better time to dive in than a bear market.

  • Enroll in your company 401(k) plan. Most companies match your contribution; by not enrolling, you're throwing away free money. (See "Young all but ignore 401(k)s, IRAs.")

  • Use a Roth IRA. You'll fund this with money that's already been taxed as part of your paycheck, but money in a Roth IRA withdrawn later is tax-free.

  • Be aggressive. Put 90% of your investments in stocks, which historically grow about 10% annually.

  • Start amassing an emergency fund so you don't bury yourself in debt if your car dies, your roommate comes up short on rent or you suffer some other financial mishap. Ideally, you'll stash away three months' living expenses, but the important goal is to save something. (See "Why you need $500 in the bank.")

  • Get a small amount -- $1, $2, $5 -- of "cash back" from your debit card at the checkout and slip it into your savings jar. At a buck here and there, you'll forget about it.

Watch your spending

Cut back now and you'll reap rewards later. A few ideas:

  • Beware the little luxuries. A 20-ounce bottle of water each day adds up to about $365 per year, $2 weekday coffees can total $500, daily vending machine snacks can cost nearly $300, and a weekly manicure can set you back more than $1,000 per year. Pack your lunch and save more than $2,000 each year.

  • Put off buying new gadgets until the price drops.

  • Don't date your way into debt. Buying dinner and movies adds up, so get creative -- try picnics, hiking, book readings or arts festivals.

  • Avoid shortcuts. The road to bankruptcy is paved with payday loans and pie-in-the-sky investments.

Updated Nov. 13, 2008

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