We recommend that before you start saving for retirement (either via an IRA or other tax-advantaged savings account), you should first build up an emergency fund. This is a chunk of change equivalent to 3-6 months of living expenses. The emergency fund should be fairly liquid and accessible, such that if you should lose your job, or run into a situation that has a much bigger cash outlay than your regular salary allows for (e.g. medical situation, car accident, etc. ) you won’t be forced into assuming credit card debt to cover those costs.
Once you’ve built up the emergency fund cash cushion, then you should start socking away money for retirement.
We recommend that you save for retirement in the following order:
Order of priority:
1. Contribute to a 401(k) up to the employer match because it’s free money
2. Max out an Individual Retirement Account (IRA)
3. Max out your company 401(k)
4. Invest any remaining savings in regular taxable accounts