The Millennial Game Plan

Financial fitness, like physical fitness, is mostly about good habits. “You’re establishing habits and getting into a routine at an early age,” says Mary Beth Storjohann, certified financial planner and CEO and founder of Workable Wealth. “So as your income grows and your life gets more complicated as you get older, you’re already in the routine of setting money aside, tracking your spending, saving for retirement and you know how to shape and plan for goals.”

Here are three habits to adopt now for financial health:

1. Spend less than you earn.

This principle is at the core of all good financial management. It’s how rich people get rich.  It’s how people who aren’t wealthy can achieve their life goals anyway, without scads of money to throw around. When you spend less than you earn, you save. And what you save becomes wealth.

“[This principle] is what makes people not worry about money, because they know they can pay their bills every month, and if an emergency comes up, they know they have enough in savings. People who spend more than they earn are going further and further into credit card debt or going into their overdraft, and that creates a ton of stress,” says Sophia Bera, certified financial planner and founder of Gen Y Planning.

This was key for me to climb out of debt, stay out of debt, build up my savings and achieve life goals like quitting my job to freelance, living in Italy for four months, moving to a new city and more.

No matter how wealthy or poor you start out as an adult, this is the secret to maintaining a life of freedom to pursue your goals. The wealthy, if they live beyond their means, lose their riches, and the poor, if they do the same, will never escape poverty. While the other two primary financial principles will make your life a lot easier, this one makes or breaks your life, period.

2. Invest as early as you can.

Everyone’s biggest financial challenge is saving for retirement. It’s the largest amount of money you’ll have to save in your lifetime, and unpredictable windfalls notwithstanding, the only way to accomplish it is to save regularly over a long period of time. But if you start to save early on in your career, the prospect becomes less daunting.

Saving at a young age allows you to take advantage of the power of compounding. If Person A saves $5,000 a year from age 25 to 40 for a total of $75,000 and then never invests another penny, and Person B invests $5,000 every year from 40 to 65 for a total of $125,000 invested, assuming 5% growth, Person A will end up with more than $400,000 by retirement, while Person B will only have $256,000, simply because Person A started saving earlier, even if she put away less.

“The earlier you start investing, the longer your money is in the market, hopefully giving you a return in the market, beyond inflation, to set you up for an income stream in retirement,” says Storjohann. “You’re in an accumulation phase for the next 30-35 years, and you want your money to grow, because when we’re 65, that’s when we have to turn on the spigot, and all of our funds have to turn into a paycheck replacement for us. We’re building up one large pot to give us a paycheck for the rest of our lives.”

So if you want to make saving for retirement a whole lot easier for yourself, start now, if you haven’t yet. Your mind is probably whirring with excuses at this point—how you really need the money now, how you’ll start when you make more money, how you can get to it later—but the truth is, there will always be an excuse. When you get a raise, you may want to save for a house, or maybe you’ll want to save for a wedding or to have kids, or save for their college education. There will never be an optimal time to start saving for retirement. You will always have to do it against competing priorities. So learn to do it at the same time as these other demands on your life. Then, when you’re 65 and you want to retire, you’ll be so glad you have enough money to live a comfortable life for the next few decades. If you don’t, then at 55 you may be facing a layoff with a modest nest egg, and you’ll be cursing your younger self.

3. Earn more.

“[Earning more] solves multiple problems,” says Bera. “If you’re used to making $2,000 a month net income from your day job but you’re able to do part-time work freelance or pick up extra hours on the weekend, that’s all extra. That’s above and beyond what you’re already making, so if you’ve already figured out your monthly expenses, let’s say you’re making $500 extra a month—that’s money that can go to pay down debt quickly or build up savings fast.” Or, you could use that money to go on a trip or save for a down payment on a home.

Beyond that, earning more has a cumulative effect. The earlier you start making more money, the larger your future raises will be , since raises tend to kick in as a percentage of your existing salary, which means more money over your lifetime. “The earlier you can lock in the higher income, the better,” says Storjohann, “because it’s more money you can set aside for your future as well.”

For me, earning more, which I began to do in my last full-time job by taking on an extra, regular freelance gig, was also key to getting myself on the right path financially. Not only did it allow me to pay off my student loan debt in about a third of the duration of my loan repayment plan, but it also allowed me to accrue enough savings for me to feel comfortable quitting full-time work. Scrimping and cutting costs only go so far, but an extra $200, $500 or $1,500 a month goes a lot further.

It's remarkable to look back and think that just four years ago I owed thousands on my credit cards, didn't have a savings account in my name and had never created a budget. Today, I have no debt, a comfortable amount of savings, a growing retirement nest egg, and I'm still able to afford things that really matter to me, like going to a friend's wedding in Turkey. I somehow even wrote a personal finance and career book. To what do I owe my transformation? These three money principles.