Four fundamental rules for financial security
Many Americans live beyond their means. But these strategies can help them get on the right track.
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.