I have no doubt that some may describe this outlook as being as naive or even borderline delusional. But as I often explain in my conversations with young high school and college grads, in this moment of history young adults have the least to lose and the most to gain. If you want to come out ahead, you want to embrace this time in our country's financial cycle to understand the mistakes we've all made, to educate yourself about money and to save and invest in your future. Youth is an asset: Young people need to make sure they explore opportunities, challenge themselves and stay determined.
Of course, too much optimism can easily cloud perception on reality and risks. So how to keep your spirits high and your grip on reality tight when you're just starting out in an uncertain economy? Here are my top five rules for being financially grounded.
1. Plan Ahead
It's natural to want to live in the present, especially when you're young and just starting out. But the smart thing to do is to think and plan about five years ahead, so that you can give your life today more meaning and direction. As I describe in my first book, You're So Money, think about what your "Good Life" entails. Where do you want to live? What kind of work do you want to be doing? Do you want to go back to school? Propose? Have a child? Buy a home?
All of these goals carry price tags - and the sooner you can start planning and addressing these goals, the more likely you'll achieve them (and stay out of trouble).
2. Prepare for Risks
To think that you're invincible is dangerous. There are risks we all face on a daily basis. Too much optimism can be blinding and may lead to hasty decision-making. (Just ask folks who bought a house between 2002 and 2007 because it seemed like there was no end to how high prices could go in the real estate market. Keep your optimism, but make sure to examine risks along the way, both ones you can control (e.g. carrying more debt than you can afford, not saving for a rainy day) and the ones you can't (a market collapse, a layoff).
3. Save, Save, Save
You need to have your financial ducks in a row. That means paying down debt and saving as much as you can when you're young. MoneyWatch editor Jack Otter told me during my visit to Ask the Experts a few weeks ago that the one lesson he's learned over the years is that it's always easier to save when you're young and you don't have dependents. Save for a rainy day in an online savings or checking account, where you can most likely earn more interest than in a traditional bank account. For retirement, an IRA and/or employer-sponsored retirement account like a 401(k) is a great option, too, especially if your company will match some of your contributions. Free money!
4. Follow Your Leaders
Whether it's your older cousin, your mom, Kobe Bryant or Oprah, understand both the opportunities and challenges your role models have experienced before finding success. You need to stay humble and appreciative of every opportunity that comes your way, especially as you're establishing your career. No one likes an entitled 23 year-old who seems to be focused on getting his boss' job right away. Even if you are enormously ambitious (and I hope you are), know that you still have to pay your dues and show your respect for the help of others.
5. Stay Flexible
Not everything is going to go your way - and that's normal. Admittedly, this is something I've learned with some resistance, but some of the best decisions are made when you consider all options - even ones that initially seem risky or strange. You may have your hopes set on getting a job at a big multinational firm, but a lower paying job at a start-up may offer you more responsibilities - and even some ownership in the company. Bear in mind that "job security" is no longer a guarantee, even at big, rich firms.
Photo Courtesy: Nazareth College's Photostream on Flickr
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