What ideas do people have for doing this?
I second minimizing taxes. Am also planning on purchasing a place to live.
1) Buying a home is a great way to both invest in your future and reduce your taxable income via the mortgage interest deduction.
2) Create a high-yield savings account for emergency funds. You should really have 3-6 mos in cash savings available for catostrophies. Online banks like INGdirect or HSBCdirect offer high-yield savings accounts that pay much more interest than traditional branch banks. Then, automate your savings, even if it's just $25/week...before you know it you'll have a decent chunk of change saved up!
3) An easy way to "pay yourself first" is to automate the savings process. Sign up for a Roth account with a very low-cost firm like Vanguard or Fidelity, and then set up automatic withdrawals from your bank account weekly, or monthly, or whatever works well for you. Higher cost firms just eat up higher percentages of your money in hidden fees, which really adds up over time.
4) Even better, automate your savings through your employer, with 401k/403b contributions that come right out of your paycheck pre-tax. This will reduce your taxable income such that you can save some money each month and still end up with nearly the same take-home, post-tax pay since you'll pay less in taxes per pay period. Start with something small, like 2%, and ramp it up each month as tolerated. You won't even notice it, and before you know it you'll be saving 10-15% of your income effortlessly! Ideally, it's nice to have a mix of Roth and 401k/403b investments, to get the benefits of both worlds since there's no way to know for sure what your future holds.
For people in their 20's or 30's, ths current market state is perhaps a once-in-a-lifetime opportunity to begin investing when stocks are incredibly undervalued. Those who're trying to time the market and are holding out on making contributions until things "hit bottom" are just fooling themselves; NO ONE can time the market, even the bestest financiers out there, although we all somehow think we can. People invested with Madoff because it seemed like he actually COULD time the market, and we see where that went...it was just too good to be true. Invest now and you might lose a small amount of money over the next year or two, but you get so many more shares per dollar right now, and can take advantage of the power of compounding and dollar-cost averaging by spreading our your investment over months/years such that the average price/share you pay will be lower than if you just throw a large sum into the mix when you happen to think it's hit bottom, and your dividends/earnings will snowball into more and more shares over time in an exponential fashion. Listen to Warren Buffett; the time to invest is when everyone else is pulling their money out or holding back. Psychologically, you may feel better being out of the market now, but study after study demonstrates that our gut feelings only lead us to buy high and sell low (which is what everyone who's "gotten out of the market" recently has done!). Quite frankly, if you don't have the stomach for potential downturn years like this then you don't belong in the stock market, as the occasional horrible year is the price you pay for the 8-12% gains you'll make on average over time.
Don't be stupid...INVEST! And don't do it with anyone making a commission. If you want help, consult a fee-only financial planner who has no incentive to lead you astray, and is certified by one of the national financial planning groups. Then invest on your own, with a low-cost firm like Vanguard, Fidelity, TIAA-CREF, etc. Staying out of the market right now is a big mistake, provided that you're investing for the long term and not planning to retire in the next 5 years.
And of course, make sure to diversify! If you don't have time to spend an hour or two a day researching stocks, you shouldn't be investing in them; buy high-quality mutual funds instead. Research shows that a portfolio containing just 3 high-quality funds like Vanguard's total stock market index, Vanguard's total bond market fund, and Vanguard's total international stock index outperforms average market gains over time. It's a pretty hands off process, but it will position you to have much more say in what your retirement looks like one day.
So ends my rant for the day
