NEW YORK (TheStreet) -- Legions of freshly minted college grads are starting their adult financial lives this month. What's the best way, to put it bluntly, to avoid the sins of their elders?
Some experts believe today's young people are more financially aware than earlier generations, largely because they've taken on more student debt and as teenagers bore witness to the financial crisis. Having seen the effects of the collapse in home prices in the past decade, many, for instance, appear wary of buying a home too soon.
That's not such a bad strategy. Even when the housing market is in normal health, a home can be a ball and chain, an obstacle to moving for a better job, and frequent moves are common in the early years of a career.
Here are the top items for a 20-something to keep in mind.
First, don't fall behind on your student loans. Going into default will mar your credit for years, making it near impossible to borrow for a car or home. Study your loan requirements and look into all the options for consolidation and minimizing payments. With certain public jobs, you may even be eligible for loan forgiveness if you maintain a steady payment history long enough. The financial aid folks at your alma mater can probably help even after you graduate, as colleges don't want a lot of defaults and delinquencies on their records.
If you don't have a credit card, get one or two. Use them, because that will help you build a credit history that will make borrowing easier in the future. But use them sparingly, so you can avoid interest charges and penalties by paying off your balance during the grace period every month. Don't get sucked in by offers for more reward points for heavy card use.
If you have racked up a lot of card debt, set up an aggressive plan for paying it down, emphasizing the card with the highest interest rate but being sure to make at least the minimum monthly payment on all the others.
For convenience, use a debit card for the majority of your expenses.
Buy a car only if you really need one, and then look for a good used one at least three or four years old. In fact, you may find a very good vehicle that's 10 years old, perhaps paying only a third or quarter of what you would for a new one. And, of course, don't get the fanciest model that strikes your eye. Don't be among the many young folks who become slaves to their vehicles.
Build a rainy-day fund containing enough cash to keep you going for at least six months. Don't expect to earn a lot of interest. Instead, use federally insured bank savings to ensure your fund is safe and easy to get at.
What about all those lectures you hear about investing for retirement? It's true: During your lifetime you will need to save a lot to fund your later years. But not many people in their early and mid-20s have a lot of money left over to invest for the long term. Getting that rainy-day fund set up is more important. If you don't set aside much for retirement before you are 30, don't worry too much. At that point, you'll still have 30 or 40 years for your retirement investments to grow, and you'll probably make more money and be able to set much more aside in those years.
That said, if your employer offers a 401(k) or similar plan, try to contribute at least enough to get the employer's maximum matching contribution. If you don't, you will be leaving money on the table. Your contributions and investment earnings will be tax deferred, saving you money every April 15.
Don't worry if investing seems like an alien world. More and more employers are offering target-date mutual funds in their 401(k)s. Select one matching your expected retirement date and the fund will spread your money automatically among an appropriate selection of stock and bond funds. Just remember that money you put into the 401(k) is tied up for the long run, subject to tax and penalty if you withdraw it before you reach the age of 59.5. That's why that rainy-day fund should be a top priority.