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Learn How to Save First, Invest Later

Most often people are told to maximize their 401(k) first before doing anything else.  But I want to make a point that a person needs to be saving money into a simple interest-bearing savings account BEFORE they try to max-out their 401(k) investment account.
What usually happens when an emergency comes along and there is no savings is that credit cards are used. Sometimes people even cash out their  401(k)’s at a horrible cost with early withdrawal penalties and loss of principal. There is no point in dumping all your money in a 401(k) if you don’t have a liquid emergency savings fund you can tap into when you need it.
Savings means putting money where there is no risk.  If you place this savings into a mutual fund, such as those many people invest in through a 401(k), it is at risk of loss.  And if you place your savings into an IRA or 401(k), it is trapped with no liquidity. You cannot have immediate use of this money and therefore you have no control.  A 401(k) is an “investment” vehicle that includes a certain element of speculation and risk. Before you get into all that, at least learn how to put money away in a savings account for emergency purposes. You will build confidence as you do so. If a person cannot save money on a regular basis, they have no right to dump money into a non-liquid investment vehicle like a 401(k), in my experience.

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