Money Guide for 20-Somethings

Manwill saves by living with her parents.

Student loans. "Don't worry about student loan debt too much," says Weston, unless it's dominated by high-interest private loans. As long as most of it is locked in at lower rates, 20-somethings are better off putting their extra cash into high-yield savings accounts or retirement savings. The other advantage of student loans is that they tend to be flexible, with loan companies granting deferrals or forbearance to struggling borrowers going through temporary crunches, Weston adds. (Deferring doesn't stop interest from piling on more debt, so it's an option to be used only in emergencies.)

But paying late or missing payments altogether should be avoided at all costs, Draut cautions. Unless a borrower officially requests and receives a deferment or forbearance from the lender, missed payments can hurt credit scores.

Savings. Weston suggests a cushion of at least $500 to pay for emergency expenses, such as car repairs, to avoid racking up more credit card debt. Ideally, every worker should have up to six months of living costs stowed away in case of job loss, but Weston acknowledges that could take years and needn't be a top priority for younger workers.

Insurance. While skipping health insurance altogether is tempting, it's a bad idea, Ulrich warns. "Almost half of bankruptcies last year were caused by medical debt. It's a gamble with your financial future you shouldn't take," she says. Since just one accident or illness can cost thousands of dollars, passing on insurance is a big risk, even for the young and healthy.

Most people get health insurance through their employer. If that's not an option, Ulrich recommends looking for a high-deductible plan, sometimes known as catastrophic insurance, to guard against major unexpected expenses. (Trips to the doctor or emergency room will cost more, but there is a cap.)

Long-term goals. Financial dreams—such as taking early retirement, buying a house, or traveling around the world—need not be put on hold for decades. But to make them a reality before middle age, they may need to be slightly massaged. For example, workers in many urban areas may find that a home downtown is unaffordable but a place in the suburbs can be within reach, Ulrich says. "You have to alter your plan."

Retirement. Saving for retirement—another long-term goal—can also be temporarily deferred. While workers should try to take advantage of matching employer contributions to 401(k) and similar plans, saving above and beyond the level covered by the match can be nearly impossible for stretched entry-level workers. Still, Weston says young people should get in the habit of saving from their first paycheck: "You have the power of time behind you now."

Fidelity, which offers life-cycle, or target-date, funds that shift into less risky investments as workers grow older, recommends saving 12 to 15 percent of gross pretax pay each year. If employees start at age 25, they can replace 85 percent of their working income in retirement, the company estimates.

If that sounds daunting, consider Ulrich's view that today's youth may not be as financially well off as their parents' generation, but they're also living much fuller lives. "Not materially, but in terms of access to information, education, careers.... We have to hearten ourselves with that."