Millennials

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When you're in your 20s topics like retirement and your long-term financial health are not at the top of your priority list. With just a little effort, however, you could build a strong foundation that could lead to financial freedom.

We asked four of our contributing writers to share their suggestions for the most important money decisions of your 20s -- and how you can get them right. Here's what they had to say:

Tim Brugger: Setting money aside in a 401(k) retirement plan when you're just getting your career started may seem impossible. After all, being relatively new to the workforce often translates to lower wages -- at least until you've "earned your stripes." But the beauty of starting early is how big of an impact time can make.

Case scenario: Your employer offers a 401(k) that matches 50% of your contributions, up to a maximum of 6%. Each plan is unique of course, but that's a fairly common setup. If you make $20,000 annually, your company will match 50% of $100 (6% of your income) contributed per month -- a pretty good return before the funds are even invested. And that $100 addition each month is pre-tax, meaning you're taxed on $100 less with each contribution, so you'll only "feel" about a $75 hit on your paycheck, assuming your combined federal and state tax rate is 25%.

Over the long haul, the $150 contributed each month -- $100 of yours and $50 from your employer's match -- can become a tidy sum when retirement rolls around. Over the past 35 years, the S&P has grown an average of about 12% annually, not adjusting for inflation. But let's say your 401(k) contributions grow at 10% over the next 35 years, about retirement age if you're in your mid-20s. That $75 out-of-pocket "expense" you feel each month will have grown to nearly $380,000.

In addition to the power of compounded growth over time, getting started early also allows you to be more aggressive with your investment choices because you can afford to ride out the inevitable ups and downs of the market. Bottom line -- with time on your side, a little can go a long way.

Matt Frankel: Tim is absolutely right that contributing to a 401(k) is one of the smartest money moves you can make in your 20s -- or any other time, for that matter. However, many jobs either don't offer a 401(k), or instead have a retirement plan with a set contribution amount. For example, my first job after college as a high school teacher had a pension plan, to which everyone contributed the same rate -- 6% of their pay.

If this is the case, you can still take full advantage of your long time horizon by investing in an IRA. These tax-advantaged accounts come in two main varieties: traditional and Roth. Both account types allow you to contribute up to $5,500 in 2015, and you can invest your contributions in any stocks, bonds, or mutual funds you choose.

The main difference is at what point you get your tax break. Traditional IRA contributions may be deductible on your 2015 tax return, but your withdrawals after you retire will count as taxable income. A Roth IRA doesn't give you a current-year tax break, but your withdrawals in retirement will be tax-free. I tend to favor the Roth since people just starting their careers tend to be in low tax brackets, but either one can be a good choice.

To see why we're so adamant about saving for retirement while you're young, consider that the stock market has historically produced returns of about 9.5% over long periods of time. To put that in perspective, $10,000 invested in the S&P 40 years ago would be worth nearly $380,000 today. So, do your future self a favor and start as soon as possible.

Adam Galas: Some of the best advice I can give young people is to learn to live happily beneath your means so you can start saving and investing today.

I just turned 29, and I know firsthand that living paycheck to paycheck is no way to live at all. It not only leads to immense fear and uncertainty about the future, but worst of all, it can rob young people of their most powerful wealth building tool: time, for savings and investment to make you rich enough to live your dreams.

For example, since 1871, across every kind of natural, human, and economic disaster you can imagine, the S&P 500 has managed to deliver an inflation-adjusted compound annual return (CAGR) of 6.9%, growing one's money by a factor of 15,000 over the past 143 years.

Of course, few of us plan to live to be over 160 years old, but my point is that by prioritizing your budget to only those things that truly make you happy, you can save and invest more, and for longer, which can make a huge difference over time.

For instance, let's say you're 25 years old and can only afford to save and invest $100 a month into a low-cost S&P 500 index fund that you plan to own until retirement. By age 65, assuming the market's inflation-adjusted returns match its historic trend, your portfolio will be worth $250,000, hardly enough to retire on.

By cutting back on simple things like a daily cup of coffee, eating out at restaurants, ordering pizzas, daily sodas, and buying expensive lunches at work, you can save about $650 per month, which, if invested the same way, grows your portfolio to almost $1.9 million over the same time period and lets you retire in style and comfort.

Jason Hall: I have a cousin in her late 20s. She spent a lot of her 20s after college traveling, and working jobs that let her do that, before settling into a local government job that she was qualified to do because of her college degree.

She wasn't happy at all. So, she took a big step to make a change and is now in nursing school.

The point? Don't assume you're really going to figure out what you want to spend the rest of your life doing when you're in your 20s -- and especially in your college-age years.

One of the biggest determining factors of your financial situation for the rest of your life is your education and training. Unfortunately, almost none of us are ready to make informed decisions about our careers at that age. My cousin could have started nursing school out of high school and would have been years further into her career, but like 99% of people, she didn't know at 18 that nursing was the path for her.

In summary, don't assume your first choices for a major or job training will be the best fit for you. Most importantly, if you realize at some point that you're on the wrong path, don't let social pressure or fear of failure keep you from walking away and taking the path that's right for you. It may be embarrassing for a few weeks or a month, but you'll be glad you took those steps for decades to come.

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