The short answer is start paying attention as soon as it’s offered to you at work. You can think about it as the financial safety blanket that will keep you warm in your golden retirement years.
The slightly longer answer is that a 401k is a tax-advantaged employee-based retirement plan. If you are lucky enough to work for an employer who offers one as an employee benefit, participating is a great way to practice financial self-care.
Specifically the way these plans work is that you tell your employer how much money you want taken out of your paycheck each month and how you want it invested. I recommend setting aside as close to 10% as you can stomach. At a minimum, you want to contribute to the point of your employer’s “match.” Some employers will say that for every $1 you contribute to your 401k, they will put in $0.50 or $1 up to some percentage of your income, often in the range of 3-6%. That’s free money.
Your next step is to decide how you want that money invested. My recommendation is to look at low-cost target date retirement funds or well-diversified lifestyle funds. If you leave your employer, you can leave the money when you have a balance of at least $5,000 or–my favorite option–roll that money over into what’s called a “rollover IRA.” As you go through your career, you may have 5, 10, or 15 jobs. So, rather than retiring with fifteen 401k accounts, you can keep rolling them over as you move from job to job into that one rollover bucket.