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Napkin Finance in the NY Times!

Three personal finance authors offer tips for young people to follow during this financial crisis, and after it is over.

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For Ms. Hay, it is critical that you understand the power, “both the good and the bad,” of compound interest.

“If you are in your 20s and 30s,” she said, “time is your biggest asset. Your money has time to grow thanks to compound interest. You’re earning money from the interest that you’ve already earned. But it is also important to understand the downside. The interest you owe on things like credit card debt and student loans can compound as well. That’s why your loan balance can go up, even if you don’t borrow more. There’s a reason compound interest has been called the most powerful force in the universe.”

She places an immense emphasis on monitoring your own credit. “It’s your reputation as a borrower,” she said. “A good credit score gives you financial flexibility, such as getting a lower rate on a mortgage, or taking on more debt.”

Finally, especially in difficult times like these, she stresses the importance of building an emergency fund.

“It is the cornerstone of financial security, because you can’t necessarily rely on credit cards or retirement savings for emergencies,” she said. “You should have three to six months of living expenses saved up.”

What you earn on that emergency money is far less important than the requirement that it must be liquid, she added. So keeping the money in a money-market fund or savings account is fine.

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