The order in which to save and invest

This is a classic long term saving and investing plan that works for many people.

Six month emergency fund

Start with saving a six month emergency fund. That is enough liquid cash to total six months of your total cost of living. Emergency funds help you weather a job loss, an unexpected illness, the need to be a caregiver, etc. Some people want more than six months of savings, but it depends on your situation. Six months is a good savings base to have. Making budgeting choices that will allow you to save before an unplanned event can prevent a desperate financial situation.

Pay off Debt

Once you have an emergency fund, pay off all personal debt quickly. Do what you can to get out of debt for your basic cost of living. Pay off student loans, your vehicle, and your mortgage. Downsize your home if possible. Own a vehicle you can afford to pay off. A new truck may look amazing, but you may need a reliable used car with lower maintenance, tags, and registration costs for a few years until you can afford the added costs of owning a new truck. Keep life simple: a home, transportation, stability. Toys will come later.

A note on paying off debt vs investing the money: Yes, there are mathematical strategies where you can grow your borrowed money at a higher interest rate than your debt interest rate by investing the balance rather than paying off the debt. There is nothing wrong with using leverage to build wealth. However, the peace of mind that accompanies zero debt on your personal living basics (home, transportation, daily cost of living) allows you to invest and use leverage with less stress because you have a stable and grounded home base. Low stress levels are important. Too much stress clouds your mind and ability to make wealth-creating decisions. Choose a simple home and vehicle that can be paid off quickly. If you desire an expensive estate and car, work to purchase them once there is financial stability to support them.

Tax advantage accounts

Tax advantage accounts are powerful investment tools that allow you to save and compound more of your money by offering tax benefits. Some of those benefits are exempt from taxation, tax-deferred, tax-free investment growth, etc.

If you have one, invest in your employer 401k up to the match. If your company matches up to 6% of your earnings, contribute 6% of your earnings to your 401K.

Max out your Roth IRA contribution limit.

Max out your contribution limit to an HSA.

Be sure to understand IRS contribution limits on these tax advantage accounts as listed on the IRS website.

Then

Go back and max out 401K or,

Choose another form of investment: Open an additional individual investment account through a brokerage (examples are Fidelity and Ameritrade), real estate flipping or rentals, etc.

Make sure you understand all the risks associated with investing.

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