This is the all-important first third of our adult lives. One of the reasons it’s so important is that the decisions you make and the actions you take regarding retirement stewardship early in your adult life will have a dramatic impact on your later years.  It may seem like a lifetime away (and in a sense it is), but don’t let that deter you. Decide early on that you are going to be a good steward. Trust me – you’ll be glad you did!

During this period, most people are trying to build a career and start a family.  Earning is the focus and saving may be very low on your list of goals during this period, but you need to start saving as soon as possible for two very important reasons:  1) to build a reserve in case of an emergency, and 2) for retirement so you can take advantage of the “magic” of compound interest and growth over the longest possible time. (The longer the time, the greater the “magic”!)

A minimum set of recommended actions in your 20s to early 30s are:

Find work you are good at and enjoy. 

Work is a gift from God, and work is good. And, your ability to work and earn an income is your greatest asset.  Choosing a career that you enjoy, that you are good at, and that the world needs and is willing to pay for, is the most important thing at this stage of your life. You can’t give, spend, save, or invest what you don’t have.

Set up a budget.  

No matter what your income is, develop a monthly spending plan, and stick to it.  This is one of the most important things you can do because it helps you accomplish many of the other things on this list. Consider Quicken Software, You Need a Budget (YNAB), Bantivity (for Mac) or an online tool such as Mint.com. You can even use old fashioned paper and pencil or a computer spreadsheet.  Bottom line: just do it!

Build up a cash reserve.

Begin building a financial reserve to protect you in case of an emergency; you and your family will certainly have one, two, or many. Initially, shoot for $1,000, but eventually a minimum of 3 to 6 months of living expenses. This will protect you from a job loss or other major emergency.

Shun debt.

Avoid consumer debt like the plague, especially credit card debt and loans on depreciating assets (such as cars, furniture, etc.).  Save up and pay cash instead. Sure, it’s harder than it sounds, but it is one of the keys to successful retirement stewardship.

Develop a lifestyle of generosity.

The sooner you build a habit of generous giving, the more ingrained it will become in your life and your family’s. Consider the tithe of 10% as a starting point, but pursue giving beyond that as you are able. You will need to keep spending under control to have money to give, so pay particular attention to it via the budgeting process.

Sign up for your employer’s retirement plan.

Sign up for your employer’s 401(k)/403(B), pension, or other retirement provision if offered.  For 401(K) or 403(B) plans, contribute (at least) the maximum that your employer will match.  If you want to invest more, do it in your IRA until you reach the maximums there. (IRAs afford more investment options, typically at lower costs.)

Open an Individual Retirement Account (IRA).

Open a Traditional or Roth retirement account (IRA) and begin making contributions. You can also open an IRA for your spouse, even if he/she doesn’t work. For most people who are eligible, a Roth is preferred to a Traditional IRA. Consider low-cost providers like Vanguard, Schwab, TIAA-CREF, or Fidelity. (Full Disclosure: As a former military brat, I use USAA, which I would also recommend to those who qualify.)

Contribute at least 10 to 15% to your Retirement Accounts. 

Try to contribute at least 10 to 15% of your take-home pay to your 401(k) and/or IRA accounts. The sooner you can start doing that, the better.

Make wise investment decisions.

If you choose to have mutual funds in your portfolio, make sure they have a consistent track record of strong performance.  Low-cost index funds that enable you to own a larger slice of a particular market are a simple and easy way to invest. You may also save on fees with Index Funds.  You can do it yourself or use an investment advisor that you trust and who does NOT sell things on commission.  Look for low management fees instead.

Don’t be too conservative with your investments.

If you keep your money in cash you will actually be losing it due to inflation. You can afford to take a little more risk at this stage in your life, so consider investing more in stocks (e.g., mutual funds or ETFs).   If you do, don’t forget about diversification (holding different kinds of stocks). But remember, you have to be able to sleep at night, so don’t take risks beyond what you can comfortably tolerate. Avoid individual stocks unless you are a trained financial analyst. Even then, be careful. Also, keep an eye on fees and commissions – these can eat into profits as well.

Review your statements.

Get in the habit of reviewing your investment account statements every month or every quarter (as appropriate).  Don’t get discouraged if you don’t completely understand them; their implications will likely become clearer with time.  If you need help, ask for it. Your advisor or low-cost provider will be glad to help.

Get comfortable with market volatility.

The financial markets can be a rocky ride at times. Learn about it and don’t focus too much on short-term ups and downs – you’re in it for the long haul. If you lose a little in the short-haul, you’re very likely to recoup it over the long haul. Over time, you will begin to understand your “risk tolerance” (a.k.a. your “sleep at night factor”), which will help guide your investment decisions.

Rebalance your investments.

Rebalance your asset allocations at least once a year to make sure they are aligned with your long-term goals.  Do this in line with your risk tolerance. If you have an advisor, they will do this for you.

Make a Will.

Especially if you are married or have a family, make an initial will to protect your heirs if you die even before you have a large estate.  You can hire an attorney, or use an inexpensive do-it-yourself software or online service (such as Quicken Will, Legal Zoom, US Legal, etc.) That decision will likely be determined by the complexity of your individual situation.

Make a Durable Power of Attorney, Health Care Power of Attorney, and Living Will.

Do this to protect your family and to ensure that your own wishes and desires are followed.  These are standard documents that can be put together rapidly – and cheaply – by using software or a service or a reasonably priced attorney.

Get health and life insurance.

Sign up for the health and life insurance offered by your employer. Also, consider purchasing additional term life insurance through your employer at lower group rates if available. If you don’t receive these benefits through your employer, shop for them in the open market.  Consider a high deductible plan with a Healthcare Savings Account (HSA) component to keep premium costs down.  Also, check out the plans available through the new healthcare law.  Depending on your Adjusted Gross Income, you may be eligible for a premium subsidy.

Purchase Long-Term Disability Insurance.

You will probably be offered Short-Term Disability by your employer. Consider purchasing long-term disability insurance as well – this is almost as important as having term life insurance.

Consider Identify Theft Insurance.

Some plans are “preventative” and mainly monitor your credit.  Identity theft insurance pays for getting things sorted out IF your identity is stolen, which can cost thousands of dollars.

Consider a house purchase.

Buying a house may be a good decision for you and your family IF you keep total costs (PITI, utilities, maintenance, etc.) within your means. Have a mortgage payment of not more than 25% to 28% of your TAKE HOME pay.  Go for a 15-year mortgage if you can afford the slightly higher payments and grow your equity faster.