How Much of Your Savings You Should Invest First
how much of my savings should I invest
You should invest your savings only after you build an emergency fund and pay off high interest debt. Keep three to six months of living expenses in a high yield savings account before you put money into the market.
You need to keep funds for short term goals in a savings account instead of the market. If you save money for a down payment on a house, you should not invest it. The market can drop and reduce your rent or purchase money.
Once you have your emergency fund, you should avoid a large cash balance in a savings account. You can miss out on market gains if you leave excess cash there. One user noted that a 110,000 dollar balance in a high yield savings account means you miss out on investment growth.
You should follow a specific order when you invest. First, contribute enough to your employer 401k to get the full company match because this is free money. Next, maximize your Roth IRA contributions for tax advantages. If you have a Health Savings Account, you should max it out because it offers triple tax advantages.
After you max out your tax advantaged accounts, you can open a taxable brokerage account. Users recommend broad market index funds or exchange traded funds like VOO or VTI. When you start early, compounding grows your wealth over time. Small monthly contributions help you avoid larger investments later in life.
Investment order
- Employer 401k match Contribute enough to get the full match from your company.
- Roth IRA Maximize contributions for tax advantages and flexibility.
- Health Savings Account Max this out if you are eligible for triple tax advantages.
- Taxable brokerage account Invest extra funds here after you max out other accounts.
Emergency Fund First
Investment Prioritization
Long-Term Strategy
Does understanding this tiered approach help clarify how you should allocate your savings between emergency funds and various investment accounts?
Bottom line
Prioritize investing only after establishing a solid emergency fund, typically 3-6 months of living expenses in a high-yield savings account (HYSA), and eliminating high-interest debt. Users's personal finance communities frequently discuss a tiered approach: secure an emergency fund, contribute to employer-matched 401ks, maximize Roth IRAs, and then consider taxable brokerage accounts.
Community answers 24
What others in the community said:
Financial Summary
66,300 401K
13,000 HYSA @3.1%
7,000 ROTH IRA
3,000 Checking
3,600 HSA
————————————
92,900 total
Debts/Assets
271,130 Mortgage @5.25%
-House is worth 312,000, was able to put down 40,000. Payment is 1750 + 175 HOA fee.
33,000 Car
-Just paid off a few months ago to improve my DTI and she’s reliable (2023 model). Had my last one (2005 model) for 10 years, ideally, would do that again this time.
700 Discover
- No interest accruing, mostly used for auto pay on bills and then paid off every month.
Monthly Expenses
55 Internet
70 Gas
50 Electric
40 Water
150 Groceries
100 Subscriptions
100 Car Insurance
50 Car gas
100 Massage
40 Cell
Total 755
30F working FT and trying to optimize for retirement. I don’t have anyone in my life to ask for advice so I’m hoping the internet can tell me if I’m in a good spot or if I need to be more aggressive. I could invest more of my HYSA in the stock market but home ownership comes with some pricey emergencies and I like the peace of mind that accessible money gives me. Just had to do work on the AC before the summer got too hot-having money on deck makes those decisions less stressful for me. I could cut out the massage and save an easy 1200 a year, but I work a job that is pretty physical and draining. Works as a mental and a physical relaxer.
Average annual salary pre-tax 75,000
First off kudos to you for getting here. Low debt in your means, you’re ahead of most! Anything you can save is a huge win.
A decent place to start is the question, are you able to save 25% of your income?
Are you putting in enough to get your employer match? (Assuming you have one)
Based on some basic math, you should have an excess of ~ $1000 per month you could save based on expenses. Are you saving that? If not do you know where it’s going? $150 for groceries seems low but I don’t know your situation.
Why would anyone be considered "behind" at age 18 with a net positive position?
You left out how much you were saving/investing and only gave us the current total.
Max out ROTH every year, don’t think you need thousands in checking, move it to HYSA and transfer money over when you need it (use credit cards to get points then just pay it off every time you get paid). Everything looks good!
Is this good or am I behind?
It's very good for an 18 year old who has only earned $7,000 in their entire life and very bad for an 18 year old who earned $100,000 last year. Stop trying to find generic benchmarks against which to declare yourself "good or behind" so that you can avoid measuring your finances against what actually matters - your specific priorities and goals.
- use this to make a budget and decide if you can and should invest in a Roth IRA.
No "rule" is law and no rule fits everyone. However, Fidelity's guideline is: Aim to save at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67.
For context, I make around 88k/year in tech sales with big room for growth in the coming years.
I currently have about $40k invested in stocks and ETFs, and invest about $200 per week into those ETFs as well. Have a few thousand in a 401k that I just got last year, and plan to max out my Roth IRA this year and onwards too.
No major debt, only an affordable lease for my car.
I feel like I’m doing okay, definitely not killing it though. What’s your perspective?
That's a lot in a HYSA. It's great, but there are more tax advantage places to put that money, like a treasury ETF and you could avoid paying the state/local income on the interest, and its essentially a cash account. Also, at your age that seems like a lot in a savings account. If you live with your parents you likely don't have many expenses so having $120K in a savings account seems like overkill to me. Open a brokerage and deploy some of that into a market ETF and sit back and enjoy the compounding over the next 30 years.
Also, you are young and you have a great start, well ahead of probably 99% of people your age. Don't be afraid to live a little.
What are your goals, short term and long term? Do you have any expenses now or upcoming?
Being net positive in general is a good thing
I guess this is super individualized, but I’m super curious. I’m 24 living at home still, HCOL area making 70k.
I plan to max out my Roth IRA this year as i did last year. I have an emergency fund. No 401k match from my employer. When all is said and done, I end up having some left over money each paycheck that I usually chuck into my HYSA.
Should I be trying to fund my IRA as fast as I can? I could literally max it for the year right now using my extra savings, but don’t know if that’s better or worse?
Should I invest outside my IRA? Is it better or worse to have extra money in my HYSA? I have like almost 9k that isn’t in my emergency fund and is not invested, just in my HYSA. What should I be doing with that lol. Is there like a percentage of income or something that should be invested? Is it better to let it sit in the HYSA?
Yes start a brokerage right away, great time to buy (last week was even better, but it’s ok)
Way too much on HYSA, take out 110k and put it into the market. You’re missing out on gains as we speak. HYSA is just for emergency funds, don’t store large chunk of cash in there.
The advice is the same; your 3-6 month spending might be lower…but it still covered the same needs
Even when living on your own; you can look at your emergency fund and wonder “darn, haven’t needed this in 18 months, look at what it could have become”
Having excess cash for a known purchase is not quite the same. Your first/last/deposit money shouldn’t be invested because “wow the market is up” can very quickly become “crap look at what my rent money dwindled down to”
Purpose drives placement
Why are the vast majority of your investments outside of tax advantaged/sheltered accounts?
I often see the recommendation to keep 3-6 months of costs of living in your savings. Now I guess it’s different when you’re in your 20s and still living with your parents. I have quite a lot saved already and it’s just been sitting in my bank account which looking at how much it would have gone up if I started investing in etf’s years ago really feels like a waste.
So I’m wondering, what would you suggest in my situation (someone living with parents, low cost of living and trying to minimize spending overall. Hoping to find a place to live (renting) in the next 2 years and having 20k+ in savings). Put a significant amount in stocks now or wait till I’m settled with my own place to live?
Seeing this question a lot lately. You are to be congratulated for getting started with a savings plan for your future. Best financial advice I got at your age was to “Pay yourself first.” from your income, all raises and all bonuses during your career. Definitely max out ROTH, IRA and any other tax protected savings accounts during your career.
Current best financial security strategy is to save and invest for growth all you can during your working years. Then at retirement, convert your nest egg to dividend income stocks and funds to replace your work income for the rest of your life. I followed that plan and have a better lifestyle in retirement than we ever anticipated.
Invest in mutual funds and ETFs based upon the S&P 500 and Nasdaq 100 stocks. These indices have grown an average of 10% and 14% respectively annually for decades. Mutual funds and ETFs based upon those indices are growing at similar rates. Investing in them gives you investment diversification across the top 600 US companies and over time these indices keep adjusting to always have the top 600 companies in them.
Maxing out your savings plans and having compound investment growth over decades until retirement can accumulate a nest egg of over $1M. Did for me and my oldest daughter who retired at 52. My other 2 daughters are on the same financial security plan. Just keep the faith in Bull and Bear markets and let time in the market be your friend.
Hope this information helps. Good luck!
I wouldn’t compare yourself to others. Just worry about yourself. Because most Americans have bad savings and retirement fund.
It all depends on your goals. If your 401k has a match % I would put a bunch in that first. If you have an HSA I would max that out since it’s a triple tax exemption haven. These two can lower your taxable income considerably.
Roth and a personal portfolio if you got extra cash to put it in. 6-8 month of salary in like a high savings account that can be pulled easily like Robinhood gold or Apple Card in case of an emergency.
The only reason to put money in to your own portfolio is when you think you’re going to make an expensive purchase in the future in like 5+ years. Otherwise put it in savings if it’s within the next 1-2 years.
Ps. Don’t carry debt especially credit card which can reach 30%+
How much debt do you have (car loan, credit cards, student loans)?
I would recommend investing in your Roth IRA asap while you’re in your 20’s. I personally set up an auto deposit of $100 each month while I was working part-time, in school, and living at home. Once you’re in a career you can start dividing your portfolio with your works 401k and other accounts. The best advantage you have right now with your Roth IRA is your age. Putting a simple $30 in it every month is going to save you from having to invest more in your 30’s/40’s (when you might have a higher cost of living if you settle down and have a family).
Since SS probably won’t be an option for you when you’re in your 50’s/60’s your best chance to be able to retire is going to be based on your savings as you enter your 20’s.
Depends on your goals. Give all of your dollars a job. The job each dollar has dictates where you should be putting it (savings, investments, etc).
If you don't need the money for short term goals, invest everything you can. Your future self will thank you.
With average returns, no major setbacks, and no lifestyle inflation you could retire in your early 60s.
If that is your goal then you are doing great.
I am 18 about to be 19, I have 7000$ saved up. Is this good or am I behind? Should I start investing in my Roth IRA or wait?
I am 20 years old and make about 100k a year at my current job (in the trade) working for a public sector agency. I live with my parents and pay all my bills and have fun using money I make from side work/side hustles. The thing is I don't really know what to do with this kind of money so I've just been saving it and investing with the hope that I would get maximum returns being so young. I am in a career with endless opportunities for movement and growth and will retire with a pension paying me 70% FAS at age 55 plus a social security equivalent on top of this. I am currently maxing out a roth 457B and saving the rest of my check for basically a 100% savings/investment rate. I have 35k in the 457B and 120k in a HYSA. Should I stop the savings and start a brokerage, and how detrimental would not saving as much and living a little more be?
I’m in my early 30s and trying to get a bit more serious about managing money.Right now my situation looks something like this:
About 35k in savings
Around 15k invested in ETFs
No credit card debt but I still have a small car loan
My instinct has always been to keep more cash in savings because it feels safer, especially with how unpredictable things can get.But lately I’ve been wondering if I’m being a bit too conservative and leaving money sitting there instead of investing it.
For people here who are middle class and trying to balance everything (rent, bills, saving, investing etc), how much do you usually keep in savings vs investments?
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