A friend of mine recently asked me the question in the title of this post. He just graduated and landed a good networking job paying about $40,000 a year. He only has a limited amount of investment knowledge and has been asking me various questions. After answering his questions I told him to check out Yahoo's Finance site, because it has a decent amount of beginner articles that do a good job of explaining the topics (IRA's, index funds, etc.) I did this so he can learn a few things on his own, and then ask me any follow-up questions (which he did).
Although I answered his questions, I think the most important thing I told him was to set goals. All he needed was a pen and some paper. I think the first mistake is not writing down your goals. If you don't write them down, then it's easier to fall off track or change/forget parts of the goals. By writing the goals down, it will reinforce the process.
The other thing I told him to do was to set a major goal (he picked a monetary/retirement goal) and then break it down into little goals. Whether it's paying off debt or aiming for that first million, when you first start attaining your goal it seems so far away. Some people get discouraged right at the start because they don't think they will ever reach their target.
If you set smaller goals it will offer encouragement with the big picture.
Right now, I know I'm incredibly far away from my main goals but I know I'm within reach of my end of 2005 goal.
I think my friend is off to a great start if he continues, he will be in great shape for the future.
