Making the right financial moves from the very beginning of your career can make the rest of your life a whole lot easier (and wealthier). This may mean sacrificing a little fun during what's supposed to be the "fun decade," but it doesn't mean living like a monk, either. And if you lose a little fun now but end up wealthy by the time you're in your 40s, isn't that a pretty fair trade-off?
1. Save credit cards for emergencies
Credit cards are a way to buy something you can't otherwise afford. If the thing you're buying is truly essential, like expensive repairs to get your car running, then using a credit card may be a wise financial decision. On the other hand, if what you're buying is not an immediate necessity, then wait until you've saved up the money and pay cash for it.
Carrying a load of credit card debt from one month to another means racking up exorbitant interest on the card, meaning that that $30 lunch could end up costing you two or three times as much by the time you get the balance paid off. So before you put anything on plastic, ask yourself if it's worth paying way more than the sticker price for the item. If not, find another way to pay for it or just say no and walk away.
1. Pay the minimum on your student loans
Unlike credit cards, student loans typically charge a pretty low rate of interest, and many loan issuers will give you flexible repayment terms. For example, the Department of Education offers several different repayment plans for federal student loans, including plans that take into account the fact that you probably have pretty low income when you're just starting out. Pick one of the repayment plans that lets you make very small payments on your student loans for a while; there are better uses for your money during this decade, including...
2. Make retirement contributions
The fact that retirement is a looong way away just means that any money you save now will have time to grow and grow and grow. If you've got a 401(k) plan at work, put in at least enough to max out the employer matching contribution -- that's free money that you don't want to lose. If you can contribute more than that, by all means do so. Ideally, you'd be contributing at least 10% of your income, but don't try to hit that level all at once -- start small and gradually increase your contribution level so that your budget has time to adjust. A Roth IRA could also be an excellent choice at this point in your career. Unlike tax-deferred retirement accounts, contributions into Roth accounts are taxed but distributions are not. In other words, if you expect that you will be in a higher tax bracket when you take the money out than you are when you put the money in, a Roth account will save you more on taxes than a traditional IRA or 401(k). So when you're just starting out and your income is relatively low, a Roth account is probably a better deal than a tax-deferred one.
3. Get health insurance
You're young and healthy, so why would you need health insurance? Even young, healthy people can break a leg or catch that bug that's going around and need antibiotics. Because you are young and healthy, your health insurance premiums will be quite low -- especially if you can get an employer-sponsored plan. Consider a high-deductible plan that's HSA-enabled to keep your costs even lower. Plus, contributions to the HSA are tax-deferred, won't be taxed if you spend them on qualified medical expenses, and can be spent on anything without penalty once you hit age 59 1/2. That means that you can consider the HSA a sort of supplementary retirement account in addition being able to use it immediately for medical expenses.
Being financially responsible
If you're looking forward to having a blast during your 20s, the idea of being "financially responsible" may make you want to hurl. But there's no law that says that you can't have fun and still enjoy healthy finances. Tuck away money for these important expenses, but save a little for frivolity, too. As Oscar Wilde famously said, "Everything in moderation, including moderation."
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