20-Somethings & Money: Lessons You Should Take From the Recession

The investment firm Fidelity surveyed 1,154 investors in February about the recession and how it changed their attitudes about money and behavior toward spending it. At the beginning of the recession, 64 percent of respondents said they were scared or confused about finances; five years later, fewer people are scared or confused, and more people said they felt confident and prepared. Fidelity found trends toward increased savings, decreased debt, increased emergency funds and searches for guaranteed income. The recession was especially hard on people age 18 to 24, who moved back in with their parents in record numbers between 2005 and 2011, Census.gov reports.
But enough complaining about the recession. You’re fortunate to have gone through this economic downturn while you were young, so you haven’t developed an over-confident attitude about money. Prepare now for a future economic bubble burst with these smart money strategies:

Buy a Home

Convert your cash into property and earn a return on your money as the value of your home appreciates. Thirty-year mortgage rates are hovering around four percent, bankrate.com reports, and if you have good credit you’ll probably get an even better rate. Home appreciation rates have been growing at a quick clip for most of 2013, and even if that pace doesn’t last, a real estate investment is, currently, still a smart one.
Start by asking a mortgage broker to pre-approve you for a loan. Pre-approve, not pre-qualify—qualification means someone took a look at your income and expenses and told you how much you can afford to buy. It does not mean you’ll get a loan. Pre-approval means you’ve gone through the application process (brace yourself, it’s as intimate as a complete physical) and a lender has agreed to loan you money.
If you’re struggling to come up with the down payment on your first home, look for other ways you can come up with the money. People who receive regular payments from an annuity or structured settlement may be able to sell their future payments for a lump sum. Follow J.G. Wentworth’s Twitter feed to learn more.

Budget

An organized budget is an effective way to understand how your money is being used and how you can control it. According to CNN Money, an effective budget does three things:

• Identifies how you are spending your money
• Sets and evaluates long-term financial goals
• Tracks current spending to keep you on track

Be as specific and honest as possible with your budget. Enter every expense in the proper category. After tracking your spending habits for a few months, you’ll begin to see where the majority of your income goes and where you might be wasting money. With this information, you can tailor your spending habits to reach your long-term financial goals. Visit Quicken.com to learn more about budgeting software and how it can help.

Invest & Diversify

Investopedia.com offers five tips for diversifying your portfolio:
1. Invest a percentage of your money in stocks from companies you know, trust and use regularly.
2. Invest with an index fund, which tracks to various indexes, such as the Dow Jones Industrials.
3. Set up continual investment. A lump sum can get you started, but regular contributions to your investments breathe life into them and enable them to grow even more.
4. Watch your investments and get out when they drop below your comfort level. If you know you won’t do this—and be honest with yourself—consider paying a financial adviser to watch your money for you and alert you when changes affect your investments negatively.
5. Speaking of those advisers, watch how much they charge in commissions. Many online services, such as Charles Schwab, make DIY tracking of your investments easy (and even a little fun).