We are back with two more important tips on the importance of personal finance in your 20s and what you can do to prepare for the future. In case you missed it, check out Part 1 and Part 2.

5) Start an emergency fund

Starting an emergency fund is an important step as you begin to push down your debt and actually accumulate wealth. An emergency fund will allow you to pay for any unexpected payments that could arise, helping you avoid having to take on even more debt when an unfortunate problem arises. Make it a goal to set aside around $1,000 to start your emergency fund. If you can afford to set aside more, then by all means go ahead! Having that extra cushion of cash will go a long way toward helping you achieve your long-term financial goals.

6 – Start a Retirement Account

Another account that you should focus on funding is a retirement account. When it comes to investing, time is your biggest ally. Starting early with building a retirement account pays off big time down the road. If your employer offers a 401(k) plan, then sign up. Your employee likely offers 401(k) matching, you should try to contribute at least the minimum amount for which you are eligible to receive the matching funds. The more you are able to contribute, the more you employer will be funding the account as well!

If your job does not offer a 401(k) plan or if you are self-employed then another option is to set up a Roth IRA account. Your bank likely offers these accounts or you can set one up with a online broker services such as Vanguard or Scottrade. Fund these accounts with index funds.

You should aim to contribute at least 5% of your gross income to retirement. To understand why funding a retirement is so important. Consider this example from the book Get A Financial Life:

“Suppose you set aside $1,000 a year from age 25 to age 64 in a retirement account that earns 5% a year (historically, stocks return about 8%, but we’ll be conservative). That’s $39,000 total you invest. By the time you turn 65, you’ll have $126,840. If you don’t get started with saving until you’re 35, you’ll only have $69,760. Starting just ten years earlier would have doubled your total. Yes, doubled.”

The money can really add up over the course of your life. That is why it cannot be stressed enough to start as soon as possible. While it may not seem important now, 30 or 40 years down the road you will be thanking yourself for making the commitment to fund a retirement account.