STARTING OUT: BEGIN FUNDING FOR YOUR FINANCIAL SECURITY

Congratulations! You've graduated from school and landed a job. Your salary, however, is limited, and you don't have much money (if any) left at the end of the month. So where can you find money to save? And, once you find it, where should this cash go?

Here are some ways to help free up the money you need for current expenses, financial protection, and future investments – all without pushing the panic button.

Get Out From Under

For most young adults, paying down debt is the first   step toward freeing up cash for the financial protection they need. If you're spending more than you make, think about areas where you can cut back. Don't rule out getting a less expensive apartment, roommates, or trading in a more expensive car for a secondhand model. Other expenses that could be trimmed include dining out, entertainment, and vacations.

If you owe balances on high-rate credit cards, look into obtaining a low-interest credit card or bank loan and transferring your existing balances. Then plan to pay as much as you can each month to reduce the total balance, and try to avoid adding new charges.

If you have student loans, there's also help to make paying them back easier. You may be eligible to reduce these payments if you qualify for the Federal Direct Consolidation Loan program. Though the program would lengthen the payment time somewhat, it could also free up extra cash each month to apply to your higher-interest consumer debt. The program can be reached at (800) 557-7392.

What You Really Need to Buy

How would you pay the bills if your paychecks suddenly stopped? That's when you turn to insurance and personal savings. Two items you need to "buy" before considering future big-ticket purchases:

• Health insurance is your first priority, as hospital stays can be extremely costly. If you're not covered under a group plan, see if you can join any trade associations, which often offer group rate policies. Otherwise, start obtaining quotes on individual policies by calling the major insurers in your state.
• Life insurance is the next logical step, but may only be a concern if you have dependents. In fact, you're statistically more likely to become disabled than to die prematurely. Disability insurance can replace about 60% of your income if you can't work for an extended period due to illness or injury. If you can't get this through your employer, call individual insurance companies to compare rates.

Build a Cash Reserve

If you should ever become disabled or lose your job, you'll also need savings to fall back on until paychecks start up again. Try to save at least three months' worth of living expenses in an easy-to-access "liquid" account, which includes a checking or savings account. Saving up emergency cash is easier if your financial institution has an automatic payroll savings plan. These plans automatically transfer a designated amount of your salary each pay period – before you see your paycheck – directly into your account.

To get the best rate on your liquid savings, look into putting part of this nest egg into money market funds. Money market funds invest in Treasury bills, short-term corporate loans, and other low-risk instruments that typically pay higher returns than savings accounts. These funds strive to maintain a stable $1 per share value, but unlike FDIC-insured bank accounts, can't guarantee they won't lose money.

Some money market funds may require a minimum initial investment of $1,000 or more. If so, you'll need to build some savings first. Once you do, you can get an idea of what the top-earning money funds are paying by referring to Money Fund Report & trade; at www.ibcdata.com/mfs/toppers.htm. IBC money market fund information is also published on Thursdays in USA Today.

Shopping for the Best Credit Card

Extensive lists of the latest low interest rate cards in the United States are available at www.bankrate.com and www.cardtrak.com.

Build Your Financial Future

Some long-term financial opportunities are too good to put off, even if you are still building a cache for current living expenses.

One of the best deals is an employer-sponsored retirement plan or 401(k), if available. These tax-advantaged plans allow you to make pretax contributions, and taxes aren't owed on any earnings until they're withdrawn. Another big plus is direct contributions from each paycheck so you won't miss the money as well as possible employer matches on a portion of your contributions.

Don't underestimate the potential power of tax savings. If you invested just $100 per month into one of these accounts and it compounded monthly at a modest 5%, you would have $41,103 in 20 years – $5,498 more than if the money were taxed annually at 25%.*

If you're already participating, think about either increasing contributions now or with each raise and promotion.

If a 401(k) isn't available to you, shop around for individual retirement accounts (IRAs), both traditional and Roth, at banks or mutual fund firms. In 2004 you can contribute up to $3,000 to traditional IRAs or Roth IRAs. Generally, contributions to and income earned on traditional IRAs are tax deferred until retirement; Roth IRA contributions are made after taxes, but earnings thereon can be withdrawn tax free upon retirement. Note that certain eligibility requirements apply and nonqualified withdrawals made before age 59 1/2 are subject to a 10% penalty.

Stop Waiting for the Next Paycheck

Beginning your working life with good financial decisions doesn't call for complex moves It does require discipline and a long-term outlook. This commitment can help get you out of debt and keep you from a paycheck-to-paycheck lifestyle.

Points to Remember

1. Outstanding debt is one of the biggest obstacles to saving.
2. Disability insurance is a major safeguard against financial trouble if you're out of work for an extended period.
3. Most experts recommend saving at least three months' worth of living expenses in case income stops. An easy and painless way to fund an emergency cash account is through an automatic savings plan.
4. Money market funds are a potentially higher-earning alternative to bank savings accounts. But money market finds can technically lose money (though they have met their financial obligations), and yields will fluctuate, unlike savings accounts.
5. Tax-advantaged retirement plans are a terrific way to help build long-term financial security.  

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