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Millennials grew up believing they’d be flying high so long as they followed a well-defined path: Notch a high score on the SAT or ACT, go to a good college, earn a respectable GPA and get a decent job. It hasn't worked out for many.
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updated 11/30/2011 7:47:09 AM ET 2011-11-30T12:47:09

After graduating from Carnegie Mellon in 2005 Jenny Gammello spent two years in New York City struggling to launch an acting career ­before deciding to make her peace with grown-up job reality — and study for the LSAT. But a funny thing happened on Gammello’s way to law school. She answered a Craigslist ad from a local yoga studio and found she could make a living doing something she enjoyed even more than acting.

Now 28, Gammello earns $60,000 a year teaching yoga, training other instructors and leading retreats. Since she spent just $5,000 on advanced instructor certification versus $150,000 on a law degree, she’s debt free and saving up to open a yoga retreat in the countryside within the next decade.

“People shouldn’t go into yoga for the money,’’ she says. “But when you’re doing the thing you’re supposed to be doing, the universe seems to make everything really easy.”

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Most Millennials — so called because they were born after 1980 and came of age in the new millennium — wouldn’t associate the word “easy” with today’s job market. As of October 14 percent of Americans age 20 to 24 were unemployed. The ranks of Occupy Wall Street are peppered with out-of-work college grads five figures deep in student debt. Young alums lucky enough to have jobs are often overqualified; a recent study by Northeastern University’s Center for Labor Market Studies found that only one in two bachelor’s degree holders under age 25 currently works at a job requiring a college degree.

“People entering the labor market now not only will face a harder time finding jobs, but they also may have difficulty finding the careers they might be hoping for,’’ warns MIT professor James Poterba, president of the National Bureau of Economic Research. Same goes for income. Entering the labor market during a recession means an average of $100,000 in lost lifetime wages, estimates Yale economist Lisa Kahn. (That’s in present discounted dollars, for you finance majors.)

All this is a rude shock to Millennials, also known as Gen Y and, less kindly, Generation Me. They grew up believing they’d be flying high so long as they followed a well-defined path: Notch a high score on the SAT or ACT, go to a good college, earn a respectable GPA and get a decent job. Work a few years, then go to grad school for further seasoning and come out with a job lucrative enough to pay off those hefty loans.

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But a rough economy is forcing Millennials to create new paths, and while that’s been jarring to some, it has liberated the Jenny Gammellos of the world to follow their entrepreneurial instincts and passions. After all, the “opportunity cost” of starting your own business is a lot lower when the alternative is working as a waiter (if you’re lucky) and not as a management trainee.

That doesn’t mean just anything goes. Here, based on interviews with economists, financial planners and savvy ­twentysomethings themselves, are some tips to help Millennials thrive in today’s economy. There’s no foolproof formula, of course. But the rules have changed, and those who embrace the new ones will have the best chance of success.

Keep working — at something
Can’t find the job you trained for? Even if you’re lucky enough to have a parent who will pay your bills while you wait for the phone to ring with your dream job offer, do something. It can be an unpaid internship or an entrepreneurial venture; either way, it will look better on your résumé than a gap, and you’ll gain valuable experience.

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In the fall of his final year in Wharton’s M.B.A. program Jeff Henretig accepted an offer from Opera Solutions, a data analytics consulting firm. But before he graduated in May 2009 Opera said it would have to delay hiring him until 2010. So Henretig teamed up with two other Wharton grads to launch a Mexican food truck — Coup de Taco — in Philadelphia.

The group raised $47,000 from friends, family and savings to buy a truck and make necessary improvements. Within three months they were up and running. By the end of their first year the business was profitable (though not enough to pay all three founders a living wage). They discussed buying a second truck and opening a restaurant.

When an improved economy led Henretig and his two ­cofounders to receive lucrative job offers in New York, they sold the business for a $5,000 loss. Now they’re all making more than they did on the truck — plus benefits. That doesn’t mean Coup de Taco wasn’t a worthwhile endeavor.

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“The economy presented me with the opportunity to gain some entrepreneurial experience,” says Henretig, now 30 and working for a small business consultancy called Next Street. “I learned more from starting up and operating Coup de Taco than I’ve learned doing anything professionally in my life.”

Don’t hide in graduate school
Applying just because you’re unemployed or don’t know what you want to do with your life is a terrible idea. It’s much better to be unemployed than unemployed with $150,000 in debt and a law degree, particularly if you don’t really want to be a lawyer (according to the Association for Legal Career Professionals, just 68 percent of 2010 grads landed a job that required ­passing the bar exam, a record low). Master’s degree programs, which can run $100,000 for two years, may leave you in similar straits. Go to graduate school only if you truly want to study something or are reasonably sure it will pay off.

If you want an M.B.A. or master’s mostly for career ­advancement, consider programs that allow you to work full-time while taking classes at night or on the weekend. Find out if your current employer has a continuing education benefit; employers can pay up to $5,250 a year for your schooling without it being counted as taxable income to you.

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If you do plan to take loans for graduate school, consider borrowing from family at, say, 4 percent versus taking the government’s 7.9 percent Graduate Plus loans. (For more on family loans, see “Grandma Beats Uncle Sam”). Mark Kantrowitz, publisher of FinAid.org and Fastweb.com, suggests taking on no more debt than your expected annual income upon graduation. (A budding investment banker might take on $100,000 in debt, but an aspiring journalist would be foolish to do so.)

“We’re in a period where we’re looking at a ton of uncertainty,” says Zac Bissonnette, 23, author of the book Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents (Portfolio, 2010). “Leverage and uncertainty are not good things to put together. Younger people should be a lot more conservative about debt than the old rules say you should be.”

Get a roommate
Housing is the single biggest expense for many Millennials — and, frequently, the easiest to reduce dramatically. A good rule of thumb: Don’t spend more than a third of your gross income on rent; ideally, keep it to no more than a quarter.

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For recent grads, living at home while job hunting has become the default, as has remaining on parental health care plans; ObamaCare has extended the age limit to 26. The government hasn’t set a cutoff for living with your parents, but take a hint from their new, smaller place. As soon as you’re employed, look for an affordable apartment of your own.

That means roommates, especially in expensive locales like Manhattan, where the average studio apartment rents for $2,200 per month. Share a two-bedroom in the East Village for $1,700 each or in Brooklyn’s grungy-chic Bushwick neighborhood for half that price.

“It’s tempting to live alone because of past bad experiences with roommates, but if you find the right roommate, it’s better financially, emotionally and logistically,” says Jon Bittner, 26, cofounder of bill-sharing site Splitwise.com. “There’s really no good reason why anybody my age should live alone unless they’re completely insufferable.”

As for buying a home or condo, in some places it’s cheaper than renting. But if you have to resell quickly, your savings could turn into big losses. Buy only if you’ve decided to settle in a certain area and are reasonably sure you won’t be moving for a job offer — or are ready to become a landlord if you do.

Make a student debt plan
You’ve probably already taken out student loans. Two-thirds of the four-year university class of 2010 had debt averaging $25,250, according to the Project on Student Debt. (Those who attended for-profit career schools typically have even more debt and worse prospects.) Law school adds an average of $80,000 and med school $120,000.You can’t ignore student debt; it generally can’t be wiped out in bankruptcy.

So make a list of your loans and their rates. If you’ve got private loans that aren’t federally guaranteed, they likely carry high variable rates and should be paid off as soon as possible. All repayments must begin six months after graduation. If you don’t have a job, apply for deferment (or, if you don’t qualify for that, forbearance). Either way, you’ll have more options than if you become delinquent or default.

Check into the discount coming in the first half of 2012. Government-guaranteed loans, including those issued through Sallie Mae or a bank, can be consolidated at a rate up to 0.5 percent lower than the average of your current rates if you agree to have monthly payments automatically taken from your checking account. Most federally guaranteed loans ­issued since July 2006 carry a fixed rate of 6.8 percent, but some “subsidized” ­undergrad loans have rates as low as 3.4 percent. If your rates vary and you’re able to pay extra principal, don’t consolidate — pay down whoppers like 7.9 percent Graduate Plus loans first.

But if you’re struggling to make the minimum monthly payment, consider consolidation and Uncle Sam’s Income-Based Repayment (IBR) program. Under IBR your monthly payment equals 15 percent of your “discretionary” income (family income above 150 percent of the poverty line). After 25 years of such payments, or 10 years if you’re working for the government or a nonprofit, any balance of unpaid loans is forgiven. So a single public school teacher earning $35,000 who took out $60,000 in guaranteed loans would pay $402 a month under IBR, instead of $690 under the standard ten-year repayment plan.

If you’re going into the private sector and expect your earnings to rise, a better option is the graduated repayment program, where your monthly tithe increases every two years. If you’re a newly minted M.B.A. with $50,000 in 6.8 percent debt and $50,000 in 7.9 percent loans you’ll start out paying $817 a month instead of $1,179. Of course, because you’re paying down principal more slowly, you’ll shell out somewhat more over the ten years with the graduated plan — $149,719 instead of $141,528.

Save for your retirement—at 70-plus
You’ve likely heard your boomer parents having conniptions over their own retirement. Take a lesson. Chances are you’ll get even less help from Social Security and traditional pensions.

Start saving for retirement as soon as you’ve built an emergency fund, and don’t be afraid of the stock market. A study by Research Collaborative found that 52 percent of 18- to 30-year-olds liquidated part of their portfolio in 2010 or 2011; only a quarter have reinvested most of the cash they removed. That’s a mistake — unlike your parents, you’ve still got three or four decades to make up for money lost in recent turbulence.

Be sure not to lock up all your money in a company 401(k), though. Put in enough to grab any company match, and then, if you can, put up to $5,000 a year of aftertax money in a Roth individual retirement account. Money in a Roth IRA grows tax free for retirement, but you can withdraw your initial contributions at any time, for any reason, without owing taxes or a penalty. (With a conventional tax-deductible IRA you can withdraw the money without penalty for graduate school, but you’ll pay income tax; most other uses, such as starting a business, will involve a 10 percent penalty.)

Do what you love
In an age of disruptive technologies — for example, when e-discovery software can displace thousands of lawyers — no ­profession guarantees security. So why not at least start out doing what you love? Cornell economics professor Robert H. Frank offers similar advice to his M.B.A. students, with a wealth-oriented spin.

“The most important thing is to find something you like to do, because only then will you have the passion to get good at something,’’ he says. “And then you might have a chance to make a lot of money out of it.’’

If you force yourself into a profession you don’t like, you may just find yourself reverting to your passion — but with a ton of student debt. Says Gammello: “Even if I had chosen to go to law school, I think I would have ended up teaching yoga anyway.”

© 2012 Forbes.com

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