How to Prioritize Your Savings: A Simple Step-By-Step Guide

Saving money can feel overwhelming when you have multiple financial goals—emergencies, retirement, college, debt payoff, and even travel. Without a clear roadmap, it’s easy to feel stuck or unsure where to start.

In this guide, I’ll walk you through a practical, step-by-step framework to help you prioritize your savings based on financial planning best practices.

Step 1: Build an Emergency Fund (3–6 Months of Expenses)

Your first financial goal should be building a safety net for life’s inevitable surprises. An emergency fund should cover 3 to 6 months of essential expenses, such as:

• Rent or mortgage
• Utilities
• Groceries
• Insurance premiums
• Minimum debt payments

This ensures you won’t need to use high-interest credit cards when life throws you a curveball—whether it’s a job loss or medical emergency.

✅ Best place to keep it: A high-yield savings account (e.g., Ally, Marcus, or Capital One) or a money market fund at a brokerage like Fidelity or Vanguard.

✅ Pro Tip: Start small, such as $50/week via automatic transfer. Celebrate milestones—first $1,000, then $5,000, and keep going.

Step 2: Save at Least 15–20% of Your Income for Retirement

A common financial benchmark is to save 15-20% of your gross income toward retirement to ensure you can maintain your lifestyle later in life.

Start with your workplace plan (401(k) or 403(b)):

• Contribute enough to get the full employer match. For example, if your employer offers a 5% match, that’s a 100% guaranteed return on your contribution.
• If you earn $70,000/year, that’s $3,500 in free money!

✅ Why this works: Starting early means more years for compounding growth, making retirement saving less painful over time.

✅ Pro Tip: Set up auto-escalation in your 401(k) to increase your savings rate by 1% each year until you hit 15-20%.

Step 3: Max Out a Health Savings Account (HSA) If You Have a High-Deductible Plan

A Health Savings Account (HSA) is a hidden gem because it offers a triple tax advantage:

• Contributions are tax-deductible.
• Growth is tax-free.
• Withdrawals for medical expenses are tax-free.

✅ 2025 Limits:

• $4,150 for individuals
• $8,300 for families
• +$1,000 catch-up if age 55+

✅ Long-term strategy: If you can pay current medical costs out of pocket, invest your HSA funds for long-term growth. In retirement, you can withdraw tax-free for medical expenses—or even penalty-free after age 65 for any purpose (though income taxes apply if not for healthcare).

✅ Pro Tip: Many brokerages like Fidelity allow you to invest your HSA, turning it into a “medical IRA.”

Step 4: Increase 401(k) Contributions Up to 20% of Income

Once you’ve got your emergency fund, HSA, and employer match covered, aim to build up your 401(k) or 403(b) contributions to 15-20% of your income.

✅ 2025 Maximum Contributions:

• $23,500 if under 50
• $31,000 if 50 or older

✅ Why it matters:

• Tax-deferred growth means you lower your taxable income today while building wealth for tomorrow.
• Most workplace plans offer target-date funds or low-cost index funds to make investing easy.

✅ Pro Tip: Utilize Roth 401(k) if you expect to be in a higher tax bracket in retirement, or traditional 401(k) for tax savings now.

Step 5: Fund a Roth IRA (or Backdoor Roth IRA)

After maximizing your workplace retirement accounts, look to Roth IRAs for tax-free retirement income.

✅ 2025 Contribution Limits:

• $7,000 if under 50
• $8,000 if age 50+

✅ Income limits:

• Single: Phase-out begins at $161,000, completely phased out at $176,000.
• Married filing jointly: Phase-out starts at $240,000, phased out at $260,000.

✅ Backdoor Roth: If you’re over the income limit, you can:

1. Contribute to a Traditional IRA (non-deductible).
2. Convert to a Roth IRA shortly after (paying minimal tax if done correctly).

✅ Why Roth IRAs shine: They provide tax diversification—giving you flexibility to manage taxes in retirement.

Step 6: Save in a Taxable Brokerage Account

After maximizing tax-advantaged accounts, a taxable brokerage account offers unmatched flexibility:

• No contribution limits
• No age restrictions on withdrawals
• Ability to invest in any publicly traded asset

✅ Best uses:

• Early retirement
• Buying a second home
• Large purchases like weddings or family travel

✅ Smart strategies:

• Invest in tax-efficient ETFs or index funds.
• Use tax-loss harvesting to offset gains and reduce taxes annually.

✅ Pro Tip: A taxable account gives you liquidity without early withdrawal penalties.

Step 7: Contribute to a 529 College Savings Plan

If you have kids (or plan to), a 529 College Savings Plan offers a great way to save for their education with tax-free growth and tax-free withdrawals for qualified education expenses.

✅ 2025 Contribution Highlights:

• Up to $18,000 per year per child qualifies under the annual gift tax exclusion.
• Some states offer state tax deductions or credits.

✅ Bonus flexibility:

• You can change the beneficiary if one child doesn’t use the funds.
• Thanks to new rules, you may be able to roll leftover 529 funds into a Roth IRA for the beneficiary (subject to lifetime limits).

Step 8: Pay Off All Non-Mortgage Debt

Finally, use excess savings to pay off all high-interest debt, including:

• Credit cards (typically 16-25% APR)
• Personal loans
• Auto loans

✅ Strategy Tip:

• Use the avalanche method (highest interest rate first) to save more on interest.
• Or use the snowball method (smallest balance first) for quick wins.

✅ Mortgage guidance:

• Don’t rush to pay off low-interest mortgages (under 5%) unless you have no other goals or value the psychological benefit of being debt-free.

✅ Student loans: Consider payoff strategies carefully, especially if eligible for loan forgiveness programs.

🎁 Summary: A Simple Savings Priority Checklist

Final Thoughts

Financial success isn’t about perfection—it’s about progress and consistency.

✅ Start with your most important goal—emergency savings—and build from there.

✅ Automate savings so you don’t have to rely on willpower.

✅ Review your savings plan every 6 to 12 months as your life evolves.

Want to build a smart financial plan for your family's future? Schedule a free consultation today, and we'll help you create a personalized savings strategy to achieve your financial goals.

*We believe the information provided is accurate, but it's not intended as tax or legal advice and shouldn't be used to avoid federal tax penalties. For guidance on your specific situation, please consult your own tax or legal advisor. If you're doing estate planning, it's important to work with professionals, including your attorney or tax expert. This content does not include specific investment advice or recommendations to buy or sell any securities. Also, while strategies like asset allocation and diversification can help manage risk, they do not guarantee profits or protect against losses in a declining market.