Money Guide: Getting Into the Game

Every May, the voice of the commencement speaker rings in the land. What's the meaning of life? Go forth! Play to win! But even though graduates may be prepared to take up jobs and careers, they're often not ready to handle money. Young adults haven't had much life experience in consumer finance, despite all the credit cards and ATM cards in their wallets. As their elders did, they'll probably learn by doing, and make a lot of mistakes along the way.

That doesn't have to happen. With the right start, you can make money management easy--in your 20s and for years to come. So here's my own "commencement" speech, about the meaning of financial life.

Respect cash. It takes real live dollars to set up on your own. You might have to move to find a job. You'll need a deposit for an apartment. Parents sometimes help with setup expenses (as many as 64 percent of upperclassmen expect some sort of help, according to an online survey by Citigroup's Citi Credit-ED). But even when you're over this hurdle, you'll need cash in the bank while you stabilize your new life. Open a savings account and keep at least two months' rent on hand.

Manage your spending. Independent life is far more expensive than you think. Add up the bills and compare them to your take-home pay. If there's more outgo than income, well ... you know what to do. (Stop eating out every night with better-paid friends? Take those electronics sites off your "bookmarks" list?) If you need a car, buy it used, not new, to hold the payments and insurance premiums down.

You'll also save money by shopping with a debit card (that's your ATM card) rather than a credit card. Paying by debit is the same as paying cash, because the money comes directly out of your checking account. Consumers always spend less when they shop with cash, and they don't get stuck with interest payments.

Throw off credit-card debt. Many young consumers think of credit-card debt as "normal"--just like having a mortgage or auto loan. In fact, it's a total waste of money that you could be using for savings or having fun. If you're carrying debt, add up the amount (most people underestimate), check the interest rates (if you paid late a couple of times, your rate might be up to 24 percent or more) and lay out a plan for paying it off. Two Web sites that can help you chart a repayment plan: choosetosave.org and dinkytown.net.