The First Bricks in Your Financial House

In a world where there's no such thing as job security, you have to create your own safety net. Here's how to get started

by Will Andrews

"When I was your age…" Those are probably the five words a younger person least likes to hear, and who can blame him or her? But in putting together the stories for our current special report, which is focused on offering strategies and insights for younger people as they start to build their financial house, I couldn't help but think about the differences between when I started at my first "real" job in the early 1980s and what graduates encounter in 2007 as they start their working—and financial—lives.

"The past is a foreign country; they do things differently there," said British novelist L.P. Hartley, who wrote The Go-Between. Right you are, L.P. I began my working life at a statistical job in a union shop, a much more common state of affairs for young workers at that time. With union status came a full menu of benefits—including the Big Three: health care, pension, and education—with the belief that those safety nets would still be stretched below workers for many years to come.

Many nonunion workers enjoyed those perks, too, at a time when the words "outsourcing," "offshoring," and "right-sizing" were exotic concepts perhaps discussed at gatherings of labor-market futurists.

Adjusting to a Seismic Shift

In the post-World War II workplace, "the big picture was that you hitched your wagon to an established company, had job security, paid your dues, did as you were told, kept your mouth shut, and waited for the system to reward you," says Bruce Tulgan, founder of leading generational-research firm RainmakerThinking and author of many books, including Managing Generation Y (HRD Press, 2001) (see BusinessWeek.com, 9/28/01, "Managing Generation Y").

Tulgan notes a painful fact of life for many workers: In recent years, there has been a seismic shift. "There's no such thing as job security because the economy is uncertain," he says. Organizations are more ruthless, pushing people to do more work better now; many outfits are constantly restructuring. The bottom line: Workers feel more like free agents. "You have to plan to take care of yourself, no matter what," says Tulgan.

That doesn't mean you're totally alone. But it does mean that unlike older generations, you have to be more actively involved in planning your financial future, and at a younger age. We've put together a special report containing advice and strategies for things like financial planning, getting a handle on your debt, obtaining health insurance, finding smart ways to further your career, and keeping the taxman at bay (legally, of course). I urge you to read them all, but here I'd like to feature some of the key concepts in our report:

Everything starts with a plan.

Whether you're consulting a financial pro to get things started or doing the DIY thing, it's important to establish your goals and priorities. Not sure? Write them down. Be ruthless—and realistic. And think holistically. Remember that the plans for your financial house should include not only your investments, but tax and estate planning, and home, and life, and disability insurance. And then there's that little thing called retirement…

Do your homework.

If you're in charge of your own retirement and health-insurance arrangements—and increasingly large numbers of you are—you'll have to be your own expert. Avail yourselves of the resources on the Web, in your local library, and consult peers who have found themselves in similar situations. Or if you're comfortable with spending the money, look for a financial planner with solid credentials (see BusinessWeek.com, 6/25/07, "So You Need a Financial Planner") and pick his or her brains until they hurt.

Question authority.

Whether it's a financial planner, an insurance agent, a loan officer, or a fund company representative, don't hesitate to ask about any issues that you're not certain about or comfortable with. Is this investment or plan really suitable for me at this stage of my financial life? What are all these fees supposed to cover? Does it really have to cost so much? These pros should be happy to answer your questions. If they're not, then find another one.

And finally…

Do you really need that…[fill in the blank]? It's often easier to get a handle on spending than to find ways to boost your income. The choices you make in your spending—a trip to the Jersey shore vs. a jaunt to Costa Rica, the 55-inch plasma screen over its 37-inch baby brother—can determine the quality of your future existence (See BusinessWeek.com slide show, 6/25/07, "How to Live Large Without Going Broke"). Just imagine if you had invested that $1,000 you saved by choosing the less-exotic vacation, or the smaller TV, in a high-quality bond fund over the next 30 or so years. Well, they don't call it the miracle of compound interest for nothing.

So if a paternalistic employer won't help you build your financial house, you'll have to pick up the tools, roll up your sleeves, and get started yourself. But with a little care and preparation, a self-built financial structure doesn't have to look like your uncle's handyman special. It can be a splendid dwelling big enough to hold your dreams.

Andrews is managing editor of the Investing Channel for BusinessWeek.com.