Don't Forget to Consider Basic Needs

Here are some examples of basic needs that should be satisfied before you determine how much you will invest for retirement and your other financial goals:

• Food
• Clothing
• Shelter
• Life, health, and disability insurance (auto and homeowner's insurance as needed)

Cover your basic needs, and then remember, save first, spend second. Try your hardest to put aside at least a small amount; every little bit counts.

Emergency Reserve Fund is a Must

Be prepared for unforeseen financial problems. An emergency savings account can be the solution—money that is liquid. Your emergency fund should consist of at least three to six months of living expenses, which can give you time to find a new job if that problem comes up. Establish an emergency reserve fund before you start doing anything else with your money.

Make Saving a Priority

Save first, spend second. It is critical that you save something, even if it is only a small percentage of your salary.

At least you are getting the ball rolling. Before you know it, the compound interest effect will take hold and you'll be amazed at how large your account has grown. Get serious about saving for your retirement.

Get in the habit of budgeting; not necessarily something sophisticated, but a routine that will allow you to be in control of your spending habits to a certain degree. Save for your retirement first.

Take a look at the example earlier in this section, Should you Participate in a 401(k) Plan?, illustrating that you can contribute to your 401(k) plan and it won't have as big an impact as you may think on your take-home pay.

SUGGESTION: Forget you got a raise and put it away for retirement.

SUGGESTION: You can always reduce or stop your contributions if you find you can't live without the money in your paycheck. Many plans allow you to reduce or stop your contributions at any time throughout the year. Check with your employer to see how your plan operates.