Saving is necessary to reach your financial goals, such as purchasing a home, retirement, or overall financial security. The steps start with short-term goals and move toward long-term goals. Take full advantage of your employer’s retirement plan and automatic deductions to your 401(k) to contribute to your future today.
Create an Emergency Fund
First, be prepared for unexpected expenses with an emergency fund. This should be enough to cover three to six months of expenses. Keeping liquid funds available will help you avoid accumulating debt, interest, or fees on borrowed cash in that emergency situation.
Pay Off Debt
After you’ve saved an emergency savings fund, but before amassing additional savings, pay off any consumer debt, focusing on highest interest loans first.
Save for Retirement
Take advantage of your employer’s retirement plan. Sign up if they match contributions. Invest your retirement plan in a diversified portfolio, or choose a target date fund to maximize your returns. By leaving it in a money market account, you could be missing out on potential gains.
Automating deductions to your Roth or Regular 401(k) is simple. Reach out to HR to set this up. When selecting your per pay period contribution amount, consider a percentage, which has the added benefit that as your rate of pay increases, so do your contributions. If you’re already doing this, evaluate if you are able to increase that percentage. You can contribute up to $19,000 a year beginning in 2019, plus a catch-up contribution of $6,000 for those age 50 or better.
A Roth or Traditional IRA is another good tax shelter for your retirement savings. You can contribute up to $5,500 a year if you meet the salary level eligibility requirements.
Invest Additional Savings
Maxed out your retirement account for the year? Accumulated savings that you’ll need pre-retirement but not in the next few years? Consider investing. I-bonds, index funds, and similar options generally offer a higher rate of return than a typical savings account. Compare rates and fees for your best option.
What step to saving are you on? What step can you take to move closer to your financial goals?