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Four fundamental rules for financial security

Many Americans live beyond their means. But these strategies can help them get on the right track.

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In today's harsh economy, it may seem contradictory that many Americans in their 20s are earning quite healthy salaries. Those with engineering, economics, or nursing degrees make beginning salaries of more than $50,000. After five years in the workforce, some earn $80,000 to $90,000 annually. But many 20-somethings outspend their paychecks, addicted to expensive lifestyles financed with high-interest credit cards. They also put little – if anything – into savings.

Many consider investing for retirement to be premature. But be advised: There are fundamental steps that people in their 20s can take to achieve greater financial security. For them, as well as for those in older generations, I offer these four rules:

Rule No. 1: Own your future.

Today's economy presents many negative realities: escalating gas and food prices; depreciating home values; and disappearing solid middle-class, benefits-rich jobs. Given this distressing financial environment, feelings of a financial future beyond your control is understandable.

To counteract that, be proactive in managing your balance sheet. Don't depend on either a single employer or the government for your financial security.

Carefully set up a budget based on your income. Carlos Arreola understands that process. A high school teacher in suburban Los Angeles, he carefully allocates his $40,000 income to support himself without credit-card debt. "I really don't spend much money except on my car and rent," he says.

Mr. Arreola owns his future because he didn't become beholden to credit-card companies that charge interest rates that border on 20 percent. As a next step, Arreola hopes to establish a strong credit profile and eventually qualify for a 0 percent down mortgage program available to teachers to purchase a home.

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