My beautiful niece, Liz, recently called to let me know that she and her long-time beau, Dan, have become engaged. After the congratulations and mazel tovs were said and I hung up the phone I began thinking. Now, anyone who knows these two even superficially knows that you’d be hard pressed to find a more intelligent, yet down to earth couple. I have no doubt that they will create a wonderful life together. However, as they quickly approach their mid-twenties I know that the financial habits they establish now will have a deep impact on their financial security down the road.

What advice would I give Liz and Dan, if they asked? Well, it’s pretty much common sense, but here is what I’ve come up with:

1. If your employer offers any sort of retirement plan, contribute at a minimum the amount necessary to meet any employer matches. Ideally, try to sock away as much as your budget will allow, ideally 10-15% or more. Remember, compounding is a beautiful thing when started early. The difference between saving $100/week versus $125/week at 5% over a 40 year period is $152,609 versus $190,760.

2. Keep track of where you spend your money. For at least a few months, ask for a receipt for everything you spend money on, then record it on a simple spreadsheet. When you have a handle of where your money is spent, you’ll be better able to make any adjustments to your spending behavior. It’ll also help you to prioritize things. If you’re finding you’re spending $300 each week on eating out, maybe you’ll decide you’d rather spend only $150 and put the other $150 towards a savings account for a new car.

3. If you don’t need it, don’t buy it. Learn the difference between “need” and “want”. Save the “wants” for special occasions only—believe me, you’ll appreciate the splurge much more.

4. If your spending up to now has exceeded your income and you’ve racked up some credit card debt make the minimum payments on all your cards, except the one with the highest interest rate charged. For that one, make the highest payment you can each month until it’s paid off. Then, work on paying down the credit card with the next highest interest rate charged. Continue until all cards are paid off then...

5. ...Live below your means and pay off any credit cards in full each month. Don’t feel that you’re entitled to anything. If you want something and money’s not an issue, then go for it. But, if you have to borrow money to finance your lifestyle, that’s obviously a lifestyle you can’t afford.

6. Set aside some money for emergencies. With two people working, 3 months worth of living expenses would be ideal. If you can’t afford that, having even one or two thousand dollars on hand will be a lifesaver in an emergency, such as if your car breaks down.

7. Don’t freak out about paying off any student loans immediately. The rates are probably fairly low and when you’re just starting out your money may be better used elsewhere.

8. Don’t be too conservative regarding your retirement accounts. Since you won’t be touching the money for over 40 years, keep most of your investments in equities (stocks). Invest in both domestic and non-US stock mutual funds. As you get older you’ll begin to invest in more fixed income (bonds) for stability, but not for many years. However, if you like the price stabilizing affect that bonds bring to your portfolio, and it will help you sleep better at night, add some bonds now.

9. Don’t “invest” the money you’re trying to save for a large purchase, like a house or car. Instead, keep it in a savings account at a bank or a money market fund. Even though your upside is limited, your account won’t lose value. When you’re ready to make that purchase you’ll be very glad to know all the money you’ve saved is still there.

10. Pay attention to fees and commissions paid when selecting investments. Always know exactly how much you’re paying for your investments. Ask questions and don’t be shy. This is your money and you want to make sure the money you’re investing is going toward the investment and not high fees or sales commissions. Spend less time obsessing about which of the gazillion US stock funds will be the next “hot” fund, and instead focus on which has the lowest fees. It’ll be a better use of your time.

11. Don’t listen to friends/coworkers/neighbors/etc. when it comes to potential investments. They may swear that they know what the next hot stock will be or boast about how high a return they’ve had, but just ignore them. Congratulate them on their business acumen and change the subject. It may be boring, but choosing the correct asset allocation, and sticking with it, is the key to successful investing through all market cycles. (Aunt Amy can help you with your asset allocation, Liz.)