Retirement

The Savings Playbook, A Logical and Rational Way to Prioritize Savings

Managing your finances can seem overwhelming, especially when you have competing goals such as saving for retirement, financing your children’s education, paying off debt, and preparing for unexpected expenses. If you have a problem with how and where to save, i Playbook for saving provides a logical order of priorities to ensure you spend your money in the most impactful way.

Let’s break down why this step-by-step savings playbook makes sense.

1. Step 1 of the Savings Playbook: An Adequate Emergency Fund

Building an emergency fund is the foundation of financial security. Why is it the first step in the savings playbook? Because life is unpredictable, and unexpected expenses like medical expenses, car repairs, or losing a temporary job can disrupt your finances and put you in debt – making wealth creation even more difficult – if you’re not ready.

Reason:

  • Having three to six months of living expenses saved provides a safety net that prevents you from relying on high-interest credit cards or loans.
    • In retirement and living off savings, you may want to keep one to three years of income in cash or low-risk investments to make sure you don’t have to sell investments at a loss to get the income you need.
  • It gives you peace of mind, allowing you to focus on other important financial matters without the constant worry of unexpected expenses.

2. Take an Employer Match into Your Retirement Plan

Contributing enough to your employer-sponsored retirement plan to protect a company match is like opening up free money for your future.

Reason:

  • Employer matching is a guaranteed return on your contributions. Not making a profit is like leaving money on the table.
  • Starting early allows compound interest to work for you, increasing your retirement savings over time.

3. Pay Down High Interest Debt

High-interest debt, such as credit cards or personal loans, can drain your finances quickly. Prioritizing your return is an important step in achieving financial freedom.

Reason:

  • High-interest debt accrues faster than most investments, so paying it off is a guaranteed way to improve your financial health.
  • Reducing debt improves your cash flow, allowing you to put more money toward savings and other goals.

4. Contribute to a Health Savings Account (HSA)

If you have access to a Health Savings Account (HSA), this is an excellent way to save for current and future health care costs while enjoying significant tax benefits.

Surprised that this comes before maxing out IRAs and 401ks? Here’s why:

Reason:

  • HSAs have a triple tax advantage: contributions are tax-deductible, growth is tax-free, and qualified expense withdrawals are tax-free.
  • Funds can roll in year after year, making HSAs a long-term investment vehicle for health care expenses in retirement.

5. Large IRA Withdrawals

Individual Retirement Accounts (IRAs) offer additional tax-advantaged savings options to supplement your employer plan.

Reason:

  • IRAs provide flexibility, allowing you to choose between traditional (tax-deferred) or Roth (tax-free withdrawal) accounts based on your financial situation.
  • Multivariate retirement accounts can improve your tax strategy during retirement.

6. Successful Your Employer Plan

Once you’ve covered your bases with emergency savings, debt reduction, and early retirement contributions, it’s time to fully maximize your employer-sponsored plan.

Reason:

  • Employer plans, such as 401(k)s, often have higher contribution limits than IRAs, enabling you to accelerate your retirement savings.
  • Contributions reduce your taxable income, giving you immediate tax benefits.

NOTE: Use the Boldin Planner to see how much you’re eligible to contribute and how much you’re on track to save for tax-advantaged retirement savings (401k’s and IRAs). Explore your retirement savings opportunity.

7. Contribute to After-Tax Accounts Like a 529 Plan

If you still have money, you can save for future goals like education or other long-term expenses by using after-tax accounts.

Reason:

  • 529 plans offer tax-free growth of educational expenses, making them ideal for college savings.
  • Tax accounts also offer flexibility in terms that don’t fit well with the retirement or health care phases.

8. Pay Off Low Interest Debt, Like Your Mortgage

Finally, consider paying off a low-interest loan. Although not as urgent as high-interest debt, eliminating this debt can provide psychological and financial freedom.

Learn more about the difference between good (good enough) and bad credit and explore the trade-offs of paying off your mortgage versus saving and investing.

Reason:

  • Paying off the loan early reduces your long-term interest payments, freeing up more cash flow for other purposes.
  • Once you’ve met your other financial priorities, being debt-free improves your sense of financial security.

The conclusion

I Playbook for saving it prioritizes your financial goals in a logical order, ensuring you meet immediate needs, take advantage of guaranteed benefits, and build long-term wealth. This step-by-step framework helps you make the most of your money by balancing risk, growth, and stability. By following this plan, you can build a solid financial foundation while advancing toward your broader goals with confidence.

Use tools like Boldin Retirement Planner to customize this playbook to your unique situation, ensuring that your financial journey is as efficient and impactful as possible.


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