BERKELEY HEIGHTS, N.J. (TheStreet) -- For people in their 20s, time really is on their side. These are the years to develop the habits to ensure a successful financial future.

As with most things in life, practice does make perfect, and there are critical financial habits a young person needs to develop to ensure their financial future:

Spending less than you make is the start of ensuring a successful financial future -- but be careful where that saved money goes.

  • Live below your means
  • Establish short-term and long-term goals
  • Invest according to your goals
  • Continue to invest in yourself

The first step is

living below your means

-- the one surefire way to build your net worth over time. And the concept is simple enough: Just spend less than you make. The idea is very simple, but we all know it is much easier said than done. The reality is, excess cash left in savings and checking accounts seems to disappear into thin air.

But the implementation is simple if you do the following: figure how much take-home pay you have; decide to spend X% of that; open an account for the amount you have decided to save; establish a monthly automatic transfer between your checking account and your new account. Initially the money set aside should be earmarked as a short-term cash reserve. After it's been established, future excess cash flow can be invested according to your short-term or long-term goals.

The next step is to

create short-term and long-term goals

. Having concrete goals will make saving for them more tangible and therefore easier to sacrifice for. Saving money for the sake of saving money is not a very appealing concept to most people, but if you view saving as a means to acquire a home, pursue further education, travel or have the wedding you want, it increases the odds of success. I would classify goals less than five years as short-term and those greater than five years as long-term. The reason the goals need to be broken into short- and long-term is so accumulated funds can be invested appropriately from a risk perspective.

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The third step is to

invest according to the length of your goals

. For short-term goals, principal protection is a major concern when investing. For example, if you have been saving faithfully for a home, having all those funds invested in an emerging-markets fund is likely not a good idea. Investments for longer-term goals can be more aggressive when you are younger. For example, if you are in your 20s, your asset allocation to pay for your retirement can be aggressive; you have 40 years until the money is needed. Do not listen to the water cooler chatter from people near retirement telling you to dump equities, by the way. The analogy I would make is that you do not dress like people who are 60, and nor should your portfolio resemble theirs.

Finally, we are in an era of constant change and minimal job security. Young workers have a 30- or 40-year career ahead of them.

Do not neglect your skills!

You will need to continue to learn whether it is through graduate studies or more focused continuing education, and the older you get, the harder it will be to pursue advanced education and training. There will be other commitments eventually, such as your family or job, so younger workers should focus on enhancing their education and skills while they have the time and energy.

I have done planning for many older couples, and their common refrain is "if I only had done this earlier." Follow these four points and you won't have to say the same 40 years from now.


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Michael Maye is the founder and president of MJM Financial Advisors (, a registered investment advisory firm in Berkeley Heights, N.J. He is a member of the National Association of Personal Financial Advisors (NAPFA) and has been a speaker covering tax topics at NAPFA's national and regional conferences. Maye has also been a frequent contributor to the Star Ledger of New Jersey's "Biz Brain" and "Get With the Plan" articles. In addition to NAPFA, he is a member of Financial Planning Association, American Institute of Certified Public Accountants, New Jersey State Society of CPAs and the Estate Planning Council of Northern New Jersey.