Have you made your IRA or Roth IRA contribution for the New Year? Did you update your 401(k) or adjust your health savings account (HSA) contribution to reach the maximum contribution for each — or to reach a fresh goal? Have you created your savings plan to top off your emergency and future opportunities fund (EFOF) for this year? Did you set your taxable investment account savings goal or even automate monthly contributions for a goal in a future year?

If you’ve met with us already this month or have your financial plan refresh scheduled for this January, the items above will very likely be part of your task list. But if this early in the year isn’t the best time for us to meet, there are a few things you can do to set yourself up for continued success on your path to retirement. 

How to Start Saving Money for Emergencies and Retirement 

Whether you’re starting your savings journey, looking to enhance it in the new year, or simply confirming that you’re on the right path, begin with the foundation. The foundation of any strong financial plan is your EFOF. What is that emergency and future opportunities fund exactly? It’s readily available liquid cash that you can tap into almost instantly if an emergency or opportunity arises. 

We generally suggest that you keep it in a high-yield savings account so that it earns some interest, aka “free money.” With inflation consistently bearing down on us, make sure that you’re earning a decent interest rate to combat it.

How Much Should You Have In Your Emergency Fund?

When it comes to the amount to keep in your EFOF, three to six months of expenses is usually sufficient. However, if you have some big goals this year, you might want to increase that amount. After all, you might not want to risk dollars that you know you’ll be using in the near term to fluctuations in the stock market. 

While your EFOF is not technically retirement savings, it’s the table stakes for doing the real retirement savings.

Where Should You Save on the Road to Retirement? Investment Order of Operations

Once your EFOF is set or you have a plan to get it to where it should be, we get to the actual retirement savings! The first step, if available to you, is contributing enough to get your full employer match in your retirement account. You wouldn’t want to miss out on any more of that “free money”!

After you’ve locked in the free money, the next place for your dollars to go is your HSA. Its triple tax advantage is the reason why. If you’re able to contribute via payroll, your contributions go into your HSA tax-free. If you can invest those dollars, they have the opportunity to grow tax-free. And, down the road, when you use them for qualified medical expenses, they come out tax-free. That’s a triple tax advantage! Some employers even contribute for their employees, making an HSA even sweeter.

Almost as great is your Roth IRA with a double-tax advantage, making it the next spot for dollars to go once you’re getting your full employer match and maxing out your HSA. Dollars go into your Roth IRA after tax, but they can grow tax-free, and that growth comes out tax-free after you’ve had your Roth IRA open for five years. Another perk of a Roth IRA is that any contributions can come out tax- and penalty-free immediately. This makes a Roth a great backup emergency fund in worst-case scenarios.

If you’re wondering where to go next, it’s back to your employer retirement account. If you make pre-tax contributions, they go into your 401(k) or similar account tax-free to you. While you’ll pay tax on those dollars down the road, you get a tax break this year. And if you choose a Roth option, you have the opportunity for tax-free growth and tax-free withdrawals after age 59.5.

Where Should You Save if You’ve Maximized All Retirement Savings?

After you’ve checked off all of the steps above, you’ve still got opportunities. Your taxable investment account is next!

If you’re looking for a personalized roadmap of which savings opportunities are best for you, schedule your consultation today. With unlimited meeting and consultation time, we’re here to assist with everything from understanding where dollars should go to lending a hand with the logistics and more. And when it comes time for you to begin that successful retirement, we’ll be here to assist with your distribution strategy, too.