Money Guide: Getting Into the Game

Teach yourself to save. At all income levels, some people save and others don't--it's usually a matter of lifestyle choice. That makes it important to get in the habit, even if you start small, says planner Martin Shenkman of Teaneck, N.J. The simplest way is to save automatically, with money deducted regularly from your paycheck or bank account. You think you can't do that, because of all your bills? As an experiment, put away $50 a month to see if it wrecks your life (it won't). Then go to $75 or $100. You'll find that your savings start building up, while your spending drops imperceptibly to the level of cash you retain in your checking account. (The funny thing is, you'll never miss whatever it is you decide not to buy.)

Where to save depends on what you're saving for. Cash reserves belong in a federally insured bank account (online, ING Direct currently offers 4.15 percent, and Capital One Direct Banking, 4.55 percent, with no fees or minimums). Money you're saving for a specific near-term purpose--a car, a down payment on a house--should be kept safe, too.

Retirement savings, which will stay put for years, call for investments in stock-owning mutual funds. You might think you're too young, too ill paid or too bothered with other bills to join your company's 401(k)--but do it anyway. These are the best years of your investment life, when your money has 40 years or more to grow. Four tips on long-term investing:

^ You could put as much as 80 percent of your money into well-diversified stock-owning mutual funds. Surveys by the Employee Benefit Research Institute find that people in their 20s hold an average of 52 percent of their 401(k) money in stock funds, 20 percent in fixed-income investments, 15 percent in balanced stock-and-bond funds and 13 percent in company stock. That's too much company stock. Just 5 percent is a better number. Betting too much of your future on a single stock isn't worth the risk. At companies that match your contribution with stock, sell it and diversify into funds, if you can.

^ A fine investment choice, if your plan offers it, would be a "target retirement fund." These funds are labeled by year, such as 2030, 2035 and 2040. Just pick the one named for the year when you'll be closest to 65, make regular contributions and forget about it. You'll get whatever mix of stocks and bonds is appropriate for your age. If there's no target fund, look for index funds--one for large stocks, one for smaller stocks, one for international funds and one for fixed-income.

^ When you leave your company and take a lump-sum payout from your 401(k), don't spend it--even if it's a small amount. Instead, roll it into an IRA or your new employer's plan. That's the only way to preserve your tax deferral and keep your money at work. If you cash out, you'll owe income taxes plus a 10 percent penalty on the earnings. Even worse, you'll have to start on retirement savings all over again.