Ready to start saving? Do it in this order

Experts agree that most people should have savings and investments in different types of accounts to save for various purposes while taking advantage of certain tax advantages. Financial experts generally advise saving 10-15% of your income, but if that’s not possible right now, start setting aside whatever you can and increase the amount over time.

The exact order in which you save will depend on your personal financial situation and your goals, but when you start building your savings, the goals are: Get in the habit of saving for the long term, enjoy the money free available through your workplace benefits and make the most of tax-free savings. To do that, here’s where you’ll want to focus your money:

Try to set aside at least three months of total living expenses in a safe, liquid account that you can access without any penalty if you lose your job or have an unexpected expense, like your car breaks down or your roof starts to leak. . An emergency fund is usually held in a savings or money market account.

High interest rate debt

While technically not about saving or investing, paying off high-interest debt should also be a top priority.

“I would prioritize any debt with an interest rate above 10%,” said Peter Hunt, certified financial planner and director of client services at Exencial Wealth Advisors. “That’s a 10% risk-free return.”

Your workplace 401(k), up to any matching employers

Money in your 401(k) account is tax-free and grows until you withdraw it in retirement. Many employers match a percentage of employee contributions up to a certain amount.

“Depending on the corresponding schedule, [the company contributions could provide] an 80% to 100% return,” Hunt said. “You’re not going to beat that anywhere else.”

Contribute at least enough to get any match offered by the employer. If your employer doesn’t have a match, you may want to focus on paying off high-interest debt first and building an emergency fund.

A health savings account

If you have a high-deductible health plan through work, you may also have access to a health savings account. (High-deductible health plans are defined as those with a deductible of at least $1,400 for an individual or $2,800 for a family.) Money goes in tax-free, grows tax-free and comes out tax-free if you use it for qualifying medical expenses.

“On tax merits alone, it’s hard not to put the HSA at the top of the heap as the best tax-efficient vehicle you could use,” said Christine Benz, director of personal finance at Morningstar.

This year, you can deposit $3,650 into an HSA account if you have a high-deductible individual plan, and up to $7,300 if you have a family plan.

Maximize your 401(k) or other retirement savings accounts

Once you have your basic savings plans in order, you can start to really increase your retirement savings. You can store up to $20,500 in a 401(k) account. Even if you don’t have access to a 401(k), you can still save money for retirement through an Individual Retirement Account (IRA), although the contribution limits are lower.

“I view retirement accounts as a use-it-or-lose-it opportunity every year,” says Marcus Blanchard, Certified Financial Planner and founder of Focal Point Financial Planning. “If you don’t use it to the limit, it’s a lost opportunity for the year.”

A cash account for short-term savings goals

You’ll want to set aside the money you’ll need over the next three to five years, such as for a mortgage down payment or to pay for college, in a secure account like a high-yield savings account or a money market, where the returns are low, but your principal is fairly safe.

“Typically, you want to save in short-term investment vehicles for short-term goals and long-term investments for long-term goals,” said certified financial planner Clark Kendall, who runs the company. Kendall Capital Wealth Management in Baltimore, Maryland. .

Low interest loans

Again, paying off debt isn’t technically a savings or investment, but paying off debt like student loans or car financing can improve your cash flow, boost your credit score, and give you more flexibility. financial over time.

A taxable brokerage account

If you still have money left over after funding your short-term goals and you’re on track to meet your long-term goals, you can take the next steps in investing. A taxable investment account is a great place to put money when you’ve maxed out your retirement accounts. “This is where you invest for the long term, for at least five years, but you have cash if you need it,” says Lazetta Braxton, co-CEO of 2050 Wealth Partners.

529 education savings

If contributing to your children’s college education is important to you, a 529 account is a great way to save. Money invested grows tax-free and can be withdrawn tax-free as long as it is used for eligible educational expenses. First, make sure you’re on track for your retirement and your goals.

Correction: An earlier version of this story misrepresented the definition of a high-deductible health plan for individuals. Individual health plans with deductibles of at least $1,400 are considered high-deductible and are eligible for a health savings account.