by: holli casto
Build your emergency savings.
According to a 2024 Bankrate study on emergency savings, most Americans wouldn't pay for an unexpected $1,000 expense, like an emergency room visit or car repair, out of their savings but put it on a credit card. That's to say, if you don't have much, if anything, in your emergency savings, you're not the only one.
Building your emergency savings should be your #1 priority to avoid going into or getting deeper into debt. We suggest getting started by opening a separate savings account for emergency savings. Next, make saving at least three months' worth of expenses a priority.
Your emergency savings is for both unexpected expenses, which can show up as things like vehicle repairs, or even an unexpected loss of income. When you spend from your emergency savings, rebuilding it should move back up to the top of your priority list.
Paying off high-interest debt.
Once you've built up three months of expenses in your emergency savings, your next goal should be to pay off high-interest debt like credit card debt and payday loans. This debt is the hardest to get out from under and the most costly. Dedicating any extra cash you have to pay it off early will save you a lot in interest payments in the long run.
If you have multiple loans or credit cards, you may want to research consolidating your debt into a personal loan. You could also look into moving your credit cards onto a low or no-interest balance transfer credit card.
Paying off this type of debt takes time and dedication, which can be discouraging at first. That said, paying off debt is similar to the law of inertia. An item in motion will stay in motion, and the more you make payments toward your debt, the faster it will be paid off. Furthermore, paying off this debt will free up the most room in your budget to achieve more of your goals moving forward.
Meet your employer's 401k match.
Once you've paid off your high-interest debt, your next priority is saving for retirement. Specifically, make sure you're meeting your employer's match for your 401k if they have one. Saving for retirement is extremely important to your financial well-being. The money you save when you're younger plays a more important role than what you save later on.
Even if you anticipate earning more later in life, which will be a bigger contribution, the money you save early will make a bigger difference. A lot of employers offer a match to your 401k. At a minimum, try to meet this 401k match so that you're not leaving money on the table.
Building a bigger emergency savings.
Once you've established your emergency savings, paid off your high-interest debt, and started saving for retirement, then your next priority should to be to save even more in your emergency savings. Set a goal of having at least six months of expenses in your emergency savings account. This will make you even more well-prepared for what life may throw your way.
This way, if you have to pull some cash out to cover an expense, it will not deplete your entire emergency savings. We also recommend keeping your emergency savings in a Money Market or High Yield Savings Account. Putting it in an account that earns interest but remains liquid, or easy to access, means that your money is going to work for you.
Contribute even more to your retirement.
Once you have at least six months of expenses saved up in your emergency savings, start contributing more to your retirement. We cannot stress enough how important contributing to your retirement is. Saving for retirement is a marathon, not a sprint.
The sooner you get started, the better. So, if you're able to increase your contribution, then we strongly suggest it. Shooting for 10% of your income is a great starting point, but if you can manage even more, go for it!
