Expert advice for young adults on how to manage their finances. By the editors of Kiplinger's Personal Finance Updated April 2014 For its Insider Tips From the Pros packages in the February 2014 and May 2014 issues, Kiplinger’s spoke with dozens of experts in fields ranging from college aid to travel to glean insights they apply to their own financial lives and share with their own family and friends. For those just starting out in their careers, we offer this guidance on saving and spending wisely:A budgeting formula for young adults Alexa von Tobel, founder and CEO of LearnVest.com Alexa von Tobel, founder and CEO of LearnVest.com One of my favorite budgeting formulas is the 50%-20%-30% rule. Start with whatever money you bring home. Of that amount, 50% or less should go to your essentials—the roof over your head, your electricity bill, your groceries, and your transportation to and from work, because it’s critical for you to keep that amount of income coming in. The next bucket of 20% goes to the future—debt repayment, retirement and all your savings goals, such as a home or a baby. The last 30% or less goes to your lifestyle—shopping, restaurants, travel and so on. Pick the right funds in your 401(k) for your future John Rogers Jr., founder and CEO of Ariel Investments I just went through this with my 23-year-old daughter. She recently got a job with a 401(k) option. I suggested that she use individual funds to build a diversified portfolio with representation in all the major asset classes: emerging markets, real estate, blue chips, small-cap stocks, mid-cap stocks and just a very small amount—5% to 10% of her portfolio—in cash and fixed income. Having that small cash cushion allows you to move more money into stocks when the inevitable correction comes. Why index funds may be better than target-date funds John Bogle, creator of the first index mutual fund and founder of the Vanguard Group I would buy a broadly diversified stock index fund. And let’s make it clear that I’m talking about a stock index fund. I have no problem with putting 100% into stocks when you make your first $500 investment in a 401(k) plan. At that point, the most you can lose is $500, and when you start with an index fund, you get the opportunity to learn how the market works. You see the ups and downs. Do that for a few years and see if you like it. Target-date funds are not as easy to deal with as the marketplace seems to think. Owners of target-date funds will also get Social Security, which provides a fixed payment in retirement. It’s not quite a bond, but it’s close. But target-date funds are often weighted too much in bonds and too little in stocks. If you don’t have a good stock index fund in your 401(k), go to your human-resources director and tell him or her you want one. The benefits are so obvious that it should be available for all employees. Rent vs. buy Guy Cecala, CEO and publisher of Inside Mortgage Finance My two sons, who are in their twenties, asked me that a few years ago, and I advised them to wait to buy because of uncertainty in the housing market. But they both bought anyway. They did their homework and chose strong neighborhoods in relatively strong markets, where home prices were stable. But, bottom line, my sons bought because they would pay about the same each month to own a house as they would to rent a nice place. Despite rising home prices, high and rising rents in many metro areas often tip the scale in favor of buying. And, of course, despite a [modest] rise in mortgage interest rates in the past year, rates are still historically low—if you can qualify for a loan. Financing costs won’t be as low in the future as they are now. An old rule of thumb says you shouldn’t buy unless you expect to stay in the home for at least five years. I’ve learned that that doesn’t work with young buyers, who tend to think in dog years—that is, two to three years seems like a lifetime. But if you’re just moving to an area, it makes sense to test locations by renting before you buy.