Family Money Advice You Can Bank On (page 3 of 8)

Young and Single: Paying Off Debt, Starting to Save

Make sure you have health insurance. Young people are negotiating the toughest job market since World War II and have to be that much smarter about getting a handle on their money. If you find a job, make sure you evaluate the various health care plans available and select one that best fits your health needs and budget. Too many twentysomethings start their working lives as part-timers or freelancers without benefits. They are so happy to get a job at all that they don't think about how a freak accident or major medical situation could bankrupt their loved ones.

If you don't get health coverage from your employer and you are about to lose your dependent-child status under a parent's plan, look into continuing your coverage for an additional cost. Federal law requires many company plans to allow an extra 36 months of coverage. But you have to notify your parent's employer that you're about to age out of the plan (that age varies from plan to plan), and you have to sign up within 60 days of receiving the election form from the plan. If that doesn't work out, check with your state department of insurance for other options. Or find a religious or professional organization that offers group coverage. This will usually be less expensive than buying equivalent coverage as an individual.

Get aggressive about paying off debt. It's the No. 1 financial issue facing this age group. Students with loans graduate from college with over $20,000 in debt and nearly $3,000 on their credit cards. Since the credit cards tend to carry higher interest rates than the student loans, it's best to attack them first. If you have a $3,000 balance on a card with a typical 14 percent rate, it will take you 21 years and $3,201 in interest if you make the minimum payments, which shrink over time. But make your current minimum payment ($65 in this case) every month, and you'll pay only $1,345 in interest, a savings of $1,856, and it will take just five and a half years.

Sign up for your 401(k). A workplace retirement plan is still one of the best ways to save. Andy Sturges, 25, a research associate at Lawrence Berkeley National Laboratory in Berkeley, California, has diligently put away about $28,000 in various retirement accounts. "I'm young, and I expect to be contributing to IRAs and 401(k)s for many years," he says. Sturges's employers did not match his 401(k) contributions, but employer matching is a key savings advantage to many plans, and it's free money. If your company is no longer matching funds during this economic crisis, consider a Roth IRA, since it offers more investment choices and greater flexibility when it comes to withdrawing money early.

If you lose your job, try to avoid tapping your 401(k) or you'll be hit with heavy withdrawal penalties, plus taxes. Instead, roll it over into an individual retirement account at a low-cost mutual fund company such as Vanguard (vanguard.com). Then, if you need to withdraw a bit to cover your bills, you'll just pay tax and penalties on that portion, leaving the rest to grow tax- and penalty-free.

Also visit: wesabe.com
Geared toward younger adults, this financial networking site gives people of all ages budgeting tools and a place to share tips on debt, savings, and more.

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