Once you have accomplished the above, you should begin to have a little extra left over each month. Start putting that money away. Even if you just put your change in a jar at the end of the day, you should put something away. I do believe in contributing to a retirement account, but even if your employer is matching, you must have three months salary in cash in a small savings account before you can do anything else. You can’t touch your 401k or IRA in an emergency. Some books call this “pay yourself first” Get in the habit of putting money away. Start an automatic savings plan in an account that is not so easy to reach. Try http://www.INGdirect.com or something similar. Have a small amount of your paycheck automatically transferred. You will learn to live on the rest.