This should be your top priority if you haven’t already done it.
Part of why saving for retirement is so intimidating is that there are so many ways you could get it wrong. You could underestimate how much you need to save and wind up running short in retirement. Or you could put too much in a single investment and risk a huge loss.
But one of the biggest retirement savings mistakes anyone can make is one that most people don’t even think of as being related to retirement at all.
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Emergency savings are key to keeping your retirement plan on track
We think of an emergency fund as a tool that helps you avoid unexpected debt and financial setbacks. But you can also see it as a way to keep your finances, including your retirement savings, running smoothly.
If you lack an emergency fund and an unexpected cost arises, you might have to stop making retirement account contributions while you’re trying to put out the present financial fire. When you’re finally able to resume saving, you’ll have to set aside even more money per pay period to retire when you originally planned.
This is why an emergency fund of at least three to six months of living expenses is one of the best financial tools you can have. When unplanned expenses arise, you can fall back on this money to cover your bills so that your retirement contributions can continue as scheduled.
Once you’ve got the immediate crisis under control, you can focus on slowly rebuilding your emergency fund until it’s back where you need it to be. Then, you’ll be ready for the next unplanned expense.