05/06/2014 12:25 pm ET Updated Jul 06, 2014

Beating the Millennial Doldrums: How to Start Your Financial Life on the Right Note

Scan the editorial section of any newspaper, and sooner or later you'll come across an article lamenting the state of the younger generation, the so-called "Millennials," or members of Generation Y. These young people, born in the 1980s and early 1990s, are now entering the American workforce -- or are trying to, but not always succeeding because of the sluggish economy. Those who do manage to find permanent, full-time work still struggle to get ahead financially: according to a recent study by the website Nerd Wallet, the Millennial generation faces the dual burden of high student loan debt and low retirement savings. Moreover, Millennials have also delayed purchasing homes or starting families because of economic hardship.

However, the situation is not as dire as some pundits would have you believe. If you're still in your twenties, you already have a huge advantage: time. That is, time to advance in your career, time to recover from market downturns, and time to invest and watch your money grow over the years. Just as importantly, behaviors that you adopt early in life will turn into habits as you age. That's why your twenties are a crucial time for your financial development.

Here are some ideas to get your finances -- and your overall net worth -- moving in a positive direction.

Tip 1: Start saving when you get your next paycheck.
A lot of people tell themselves, "I'll start saving when I earn more money." The result is that they keep putting off saving and live from paycheck to paycheck. Let's be clear. You don't start saving when you think you have enough money to save: you start saving when you begin earning money. Starting small is okay for now, since you're still developing habits for later in life.

Tip 2: Pay your bills on time no matter what.
If you owe somebody money, pay them... and do it on time. Late bills end up on your credit report, and you want to keep your credit report clean so that you can later get a good interest rate on a home or auto loan, if you need to take one out. Right now, you're young and you don't have a lot of negative baggage on your credit report. Make sure you keep it that way.

If you've got student loans from college, this point is really important. Sometimes those loans might seem overwhelming, but don't risk going into default. Unlike other kinds of debts, you can't get rid of student loans by declaring bankruptcy. But there is good news. If you're having trouble making your payments, there are programs available to help. You can defer payments on your loans because of hardship, or you can apply for an Income-Based Repayment plan that caps your payments at a certain percentage of your income. You can get more information at

Tip 3: If you don't have health insurance, get it now.
You're young and healthy, so you can skimp on health insurance, right? Wrong. You don't get to decide when you get sick or injured. You can stack the odds in your favor by living a healthy lifestyle, but you could still get in an accident tomorrow and end up in the hospital. And hospital stays can wipe out your savings fast. So get health insurance before you need it.

Tip 4: Avoid lifestyle inflation.
When people get a raise at work, they often start "supersizing" their lifestyle. They buy a better car or rent a more expensive apartment. Your natural tendency is to reward yourself -- a trend I call "lifestyle inflation." As soon as your wages go up, so do your wants. If you're a recent college graduate and have landed your first "real" job, you especially need to be on guard against the temptations that a higher paycheck brings.

But here's the problem: if you buy more stuff each time you get a raise, you'll be running on a financial treadmill. Instead of spending more, why not bump up your monthly savings rate each time you get a raise?

Tip 5: Chose a retirement plan now.
We know that retirement isn't the first thing on your mind right now. That's a long way off. But think about it this way: the earlier you start saving, the more options you'll have later in life. If you stop thinking of retirement as an age and instead think of it as an ability, you might feel more motivated.

To reach your retirement goals, you need to start investing in stocks, bonds, real-estate or other assets. The earlier you invest, the more time your money has to grow. For instance, when you invest in stocks, you earn compound interest on your money. As you might remember from your junior high math class, compound interest is interest paid on top of interest you've already earned. If you make 7 percent per year on your investments (an average rate of return for a mixed portfolio of stocks and bonds), your money will double in roughly 10 years.

A good method for investing your money is to put it into a 401(k) account through your workplace. Many employers will match your 401(k) contributions up to a certain amount annually. For example, if you put in 3 percent of your salary, they'll put in 3 percent as well. This is free money! Always contribute up to the match limit at least; otherwise, you're leaving money on the table.

Tip 6: Chose a spouse who shares your financial goals.
I'm not saying you need to marry a millionaire in order to be happy. I'm just saying that you need to marry someone who can handle money responsibly. Otherwise, you might be practicing all the right financial behaviors that we discussed, but find that your goals are being derailed by an irresponsible spouse. If your boyfriend or girlfriend has a problem with impulse buying or paying bills on time, you need to think twice before tying the knot. They might look hot now, but will they look cute when you're in bankruptcy court?

Tip 7: Define your long-term financial goals and find a way to chart your progress.
If you get a head start on clarifying your goals, you'll have a greater likelihood of reaching them. Ask yourself what you want to accomplish. Do you want to retire at age 50? Do you want to save money for your own start-up? Do want to own a house in 10 years? Your goals are up to you. The important thing is start planning early so that you have more time to achieve those goals.

Right now, you've got decades of life ahead of you. Ask yourself, what do you want those decades to look like?

The Best Advice I Ever Got