Money Guide: Getting Into the Game

^ If you don't have a company plan, consider a Roth IRA. You can save up to $4,000 a year, after tax. All the earnings come entirely tax-free, as long as you take them after age 59i. Roths have another big advantage: you can withdraw your own contribution whenever you want, tax-free and penalty-free. For example, say you invest $3,000 over three years, and earn $400. If you suddenly need money, you can withdraw up to $3,000 at any time, no strings attached. So your savings aren't locked up. You can get a Roth IRA through mutual-fund groups, such as Fidelity, T. Rowe Price and Vanguard. As investments, you can use target retirement funds and index mutual funds, among others. Make smart insurance choices. Don't waste your money on life insurance if you have no dependents to support. If you do, buy low-cost term insurance (check quotes at insure.com and term4sale.com). Finding health insurance is harder. If you can't get coverage through your employer, look into policies with large upfront deductibles, such as $5,000 a year. Costs vary from state to state. A 25-year-old in good health might pay $40 to $60 (or more) a month for a policy with a $5,000 deductible plus some co-pays on higher bills. This might not seem worth it, because you cover all your routine costs yourself. But if anything goes really wrong, the uninsured often find themselves doomed to poor medical care.

Remember Terri Schiavo. She was struck down at just 26. You need a living will, a health-care representative (to see that your wishes are carried out), a durable power of attorney (so someone can manage your financial affairs, if you can't) and a will (you may think you have nothing to leave but if, God forbid, you die in an accident, there may be a financial settlement). Also, write a live-together agreement, if you have a roommate, and share expenses or purchase property jointly. Do-it-yourselfers can try legaldocs.com or nolo.com.

Your battle order. You can't fix everything at once, but here's a step-by-step approach. (1) Sign up for an automatic savings plan--even just 2 percent of pay, if that's all you can afford. (2) Bring your spending under control. (3) Get rid of consumer debt. (4) With your debt gone, increase your automatic savings, both for ready cash and other goals, such as a down payment on a house. (5) Raise the amount you're adding to your retirement plan. Generally, 6 percent of pay will capture the full employer match, if there is one. By your 30s, you should be saving at least 10 percent.

Avoid financial planners, for now. Young workers' first contact with planners is often through friends who are brokers or insurance agents, or whose cards read "financial adviser." They may be newly in business, too. To keep their jobs, they have to sell high-commission products, such as variable annuities, cash-value life insurance and high-fee mutual funds. They've been taught that there's no better choice, but those products will make them rich, not you. Stick with low-cost simple things, such as IRAs and target funds. At this stage in your life, there's nothing that you can't do better yourself.

Reporter Associate: Temma Ehrenfeld

© 2006