7 Personal Finance Principles for Gen Y

As a twenty-something you're probably more concerned with climbing to the next rung of the career ladder than planning for when you step off and retire. But just because golfing in Florida seems far away, that doesn't mean you can give zero thought to your finances now. After all, being sensible with your money will give you the flexibility and security to change career direction, go back to school or make a move to a new city. Financial savvy and career savvy are inter-related.

The folks at personal finance management site Mint know this better than anyone. (Check out our great interview with the site's founder Aaron Patzer here.) And recently they boiled down their knowledge into a handy personal finance guide for Gen Y:

• Start Early - The most important thing for a young person to do, financially, is to start early. This might come as a surprise to you if you're the type that tends to obsess over minutiae like whether Roth or Traditional IRAs or better. A surprising number of young people would rather debate about various aspects of personal finance than take meaningful action to get started. Don't do that.
• Have a Plan. It might sound somewhat hypocritical to tell you to get started right away and then tell you to have a plan. By "plan," however, we mean simply a set of financial goals. You're young, so it's only natural that you're hardly motivated to save or invest. To stay committed, it helps to save or invest with a specific, meaningful goal in mind.
• Take Advantage of Employer-Sponsored 401(k) Accounts. If you have a full-time job, your employer likely offers a 401(k) or similar retirement plan. With these plans typically comes some form of matching: the employer will contribute a certain amount for every dollar you contribute. If you have a 401(k) plan with an employer match, take advantage of it. It is literally free money.
• Start an IRA, Too. Already participate in a 401(k)? Good for you. Now, think about opening an IRA. What about Roth IRAs vs. Traditional? Here's the difference â€" with Roth IRAs, you pay taxes on your contributions now but not when you withdraw. That means the accumulation and growth that occurs within the account does not get taxed. A Traditional IRA lets you save without contributions being taxed today. Instead, they are taxed when you withdraw. It's a good deal either way, but Roth IRAs are arguably smarter.
• Invest Passively. It has been said (and supported) that a bunch of monkeys throwing wet paper towels at lists of stocks on a wall produce roughly the same returns on an investment as professionals armed with reams of statistics and formulas. Plus, actively managed mutual funds typically charge higher fees that further erode your return. Don't go down this road. Instead, be "boring" by investing in index funds, or even go with a life-cycle fund which attempts to keep you well-diversified without having to manually balance your portfolio each year.
• Automate It. Contrary to what you may think, the key to successful savings and investing is not discipline. In fact, it's the opposite -- automation. The idea is to set up your accounts to be automatically funded when you get paid each week or month.
• Cut Spending to Free up More Investment & Savings Capital. If you're going to put specific goals and make up a plan to make sure you commit, it only makes sense to put some real force behind your efforts. In that vein, Mint advises analyzing your overall spending habits to get ideas for where you might be able to cut wasteful spending.