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This article offers practical advice on how—and where—to save for three big goals: financial emergencies, college, and retirement. But the strategies it outlines can apply to many other goals, such as saving for a new car, a down payment on a home, or the vacation of a lifetime, or launching your own business.

Before you get started, it’s worth taking a look at any outstanding debts you have. It makes little sense to pay 17% interest on credit card debt, for example, while earning 2%, if that, on your savings at the bank. So consider tackling the two in tandem, putting some money toward savings and some toward your credit balances. The sooner you can pay off that high-interest debt, the sooner you’ll have even more money to put into your savings.

How to Save Money for an Emergency

The first saving goal for most individuals and families should be an emergency fund large enough to handle serious, unexpected expenses, such as a costly car repair or medical bill—or both at the same time. An emergency fund can also tide you over for awhile if you lose your job and need to hunt for a new one.

Financial planners commonly recommend setting aside at least three months of living expenses. Some suggest six months or even a year. In the case of retirees, some planners advise keeping two years’ worth of living expenses in an emergency account, to avoid the risk of having to cash in stocks or other volatile investments in a bear market. Unless you’re already a big-time saver, your take-home pay is a fair approximation of your monthly living expenses, and it’s easily found on your pay stubs or bank statements.

So that you can get to your money quickly in an emergency, the best place to keep it is in a liquid account, such as a checking, savings, or money market account at a bank or credit union, or a money market fund at a mutual fund company or brokerage firm. If the account earns a little interest, all the better.

In most cases, these kinds of accounts will allow you to write a check, pay a bill online or with an app on your phone, or move money by electronic wire transfer from your account to someone else’s. If they provide you with a debit card, you’ll be able to withdraw cash from an ATM.

To fund your account, consider using all or part of any money that comes your way outside of your usual paycheck. That might be a tax refund, a bonus at work, or income from a side gig. If you receive a raise, try to contribute at least a portion of that to your account, as well.

Key Takeaways

Employer-sponsored retirement plans like 401(k)s make saving for retirement easy and automatic, and some employers will match your contributions.
State-run 529 college savings plans let you withdraw money tax free as long as you use it for qualified education expenses.
By tracking your expenses manually, or with an app, you can find ways to reduce your spending and boost your savings.

Another time-honored tip is to “pay yourself first.” That means treating your savings like any other bill and earmarking a certain percentage of every paycheck to go into it. To avoid the temptation of simply spending the money, you can often arrange for it to be deposited directly into the account by your employer or else deposited into your everyday checking account and then automatically transferred from there into your emergency fund.

Of course, saving even three to six months’ worth of expenses is easier said than done for many of us. Someone with take-home pay of $50,000 a year, for example, would need to set aside $12,500 to $25,000. If they devoted 10% of every paycheck to emergency savings, it would take two and a half years in the first instance and five years in the second, not counting any additional contributions or interest the account might earn. But even if it takes a while, it’s a goal worth working toward, both for financial security and peace of mind.

One last thing: If you ever need to take money out of your emergency fund, try to replenish the account as soon as possible.

How to Save Money for Retirement

The easiest, most automatic way to save for retirement is through an employer plan, such as a 401(k). The money comes out of your paycheck automatically and goes into whatever mutual funds or other investments you’ve chosen. You don’t have to pay income tax on that money, or on the interest or dividends it earns, until you eventually take it out. As of 2019, you can put as much as $19,000 a year into a 401(k) plan if you’re under 50 and as much as $22,000 if you’re 50 or older. As still another incentive, many employers will match your contributions, up to a certain level. If your employer kicks in another 50%, for example, an investment of $10,000 on your part will actually be worth $15,000.

If you’re fortunate enough to have even more than the 401(k) maximum to set aside for retirement, take a look at IRAs, either the traditional variety, where you get a tax break when you put money in, or a Roth IRA, where the money you withdraw someday can be tax-free.

How to Save Money for College

College may be the second biggest savings goal for many of us. And, just like retirement, the easiest way to save for it is automatically—in this case, through a 529 plan.

Each state has its own 529 plan, sometimes several. You don’t have to use your own state’s plan, but you’ll generally get a tax break if you do. Some states allow you to deduct your 529 plan contributions, up to certain limits, on your state income taxes and won’t tax the money you take out of your plan as long as you use it for qualified education expenses, such as college tuition and housing. The federal government doesn’t offer any tax breaks for the money you put in, but, like the states, won’t tax the money you take out as long as it goes toward qualified expenses.

How much you can contribute to a 529 plan each year varies by state. Many have no limits; some set an annual limit of $15,000. Even states with no annual limits may restrict how much in total you can put into their 529 plans. In New York, for example, a 529 plan balance can’t exceed $520,000 for any one beneficiary; in Texas, it’s generally $370,000.

As of 2018, you can also use a 529 plan to pay up to $10,000 a year in tuition at an elementary or secondary public, private, or religious school.

How to Save Money for College and Retirement

Most of us are likely to have more than one savings goal at any given time—and a limited amount of money to divide among them. If you find yourself saving for your retirement and a child’s college at the same time, one option to consider is a Roth IRA.

Unlike traditional IRAs, Roth IRAs let you withdraw your contributions (but not any earnings on them) at any time without tax penalties. So you can use a Roth IRA to save for retirement, and if you come up short when the college bills arrive, tap into the account to pay them. The downside, of course, is that you’ll have that much less money saved for retirement, when you may need it all the more.

With a Roth IRA you can withdraw your contributions without penalty, making it a good savings vehicle for college as well as retirement.

As of 2019, the maximum allowable IRA contribution (for traditional and Roth IRAs combined) is $6,000 if you’re under 50, or $7,000 if you’re 50 and up.

How to Save Money for Saving

If you need to save more money than you can easily pry out of your paycheck, here are some ideas often suggested by financial planners:

Get a handle on your spending. For a period of time—a week, a month, or whatever you can stand—try to record absolutely everything you spend money on. You can either use an old-school notebook or an expense-tracking app, such as Clarity Money, Penny, or Wally. People often find they’re frittering away funds on things they don’t need and could easily live without. Some apps will even do a bit of saving for you. The Acorns app, for example, links to your debit or credit card, rounds up your purchases to the next dollar, and moves the difference into an investment account.

Get cash back on your purchases. As long as you are buying things you truly need, it may make sense to sign up for apps such as Ebates or Ibotta, which offer cash back from retailers on groceries, clothing, beauty supplies, and other items. Or you can use a cash-rewards credit card, which offers 1% to 6% in cash on each transaction. Chase Freedom, for example, offers 5% cash rewards on categories that change periodically. Of course, this tactic only works if you transfer your savings to a savings account and always pay your credit card bill in full every month.

Focus on major expenses. Clipping coupons is fine, but you’ll save the most money by paring back on the biggest bills in your life. For most of us that’s things like housing, insurance, and commuting costs. If you have a mortgage, could you save by refinancing it at a lower rate? With insurance, could you shop around for lower premiums or “bundle” all your policies with one carrier in return for a discount? If you drive to work, is there a cheaper alternative, such as carpooling or working at home one day a week?

But don’t go crazy. You might want to dine out less often, try to get a few more wearings out of your wardrobe, or drive the old car for another year. But unless you enjoy living like a miser, and some people actually do, don’t deny yourself every last pleasure in life. The point of saving money is to build toward a financially secure future—not to make yourself miserable in the here and now.