Your Guide to Saving Money

Step 2: Begin Saving for Retirement

Why is it important to set up your emergency fund first, then start socking away for retirement? Because unless you’re a member of the 65-plus crowd, using retirement funds to pay for expenses usually isn’t a good idea. After all, you’ll have to pony up taxes on your withdrawals, and you may even get hit with a penalty. Start by setting aside at least 3 percent of your salary. If you’re self-employed or your company doesn’t offer retirement benefits, opt for an individual retirement account (IRA). If your workplace contributes to your retirement (according to the benefits consulting firm Aon Hewitt, 65 percent of employers offer some sort of matching benefit), ideally put enough in your 401(k) to receive the full matching amount. Once you’ve been saving for one to three months and you’re accustomed to a slightly smaller paycheck, move on to the next step.