Ahh the rainy day fund.. did you know that upwards of 40% of Americans couldn’t handle a $400 unexpected expense? Honestly, I don’t believe they couldn’t handle it, its just that they don’t know how to prepare for it.

I am going to start this rainy day fund portion though with a disclaimer.. you have to pay off any high interest rate debt off prior to this. You can fund it slightly, but just like we talked about that great return on your 401K with matching, paying off high interest debt is an excellent return as well. if you’re paying upwards of 25% interest on a credit card, that is 25% you will be making the second it is paid off, and in order to make this dream of retirement come true, it will be very hard to do with that debt looming overhead like a nice dark cloud.

Okay, so the rainy day fund.. this fund will really be different for everyone. The recommendation is always 3-6 months of living expenses (SEE WHY A BUDGET IS SO IMPORTANT). I would recommend somewhere in that 5-6 month range, this way it gives you a little flexibility, as well as enough time to get back on your feet for anything that may happen. The reason this differs for everyone is because everyone lives different lives.. if my rent is $500 and I keep expenses low I may only need $8K, where on the flip side if I live a bit more lavishly I may need $25K or so. One thing still stands though and will really help leverage this rainy day fun.

HIGH INTEREST SAVINGS ACCOUNTS… if you don’t know what these are please familiarize yourself! While you will never get rich from one of these, your rainy day fun will just be sitting. The average savings account at a brick and mortar bank is maybe .01% heck maybe .05%. Im not sure if you have millions of years to hang out to make a few bucks, but I would like my money to work a bit for me. This is why I recommend an only high interest account. There are a multitude out there, but I am currently using Betterment, which is offering 2.48%. As I said, you will not get rich off of this, but if you have $25K saves you’ll be snagging an extra $500 or so a year, and who hates free money? Now you will receive a tax form for this interest, but typically these earnings are low enough that they won’t end up being taxed.

This second one is pretty self explanatory, you need to make sure you pay all of your bills. I would make yourself a budget, it won’t take more than 5-10 minutes and you would be amazed at some of the things are you spending money on. I recommend that if you need some help utilize the app MINT. I use this almost weekly as it shows a very nice overview of money in and money out. This will really help you see where your money is actually going. Everyone assumes they have a grasp on their expenses, but I can tell you from experience that until you write your budget down you are forgetting something.

In this I would also say we should be paying down any high interest debt. Not all debt is bad debt, but I can say that anything over 20% 😳😳 needs to be paid down and paid off as fast as possible. This is so important that it should be done before anything else on this list, with the exception of the 401K. We will eventually be getting to some posts on the best ways to pay down these debts, but know that this needs to be a very very high priority on your list.

Your 401K should be the first place your money goes. This should be an easy task as it comes out pretax, meaning you won’t even see it prior to saving it! As well as every dollar you save isn’t actually a full dollar you’re losing in your paycheck. If you don’t believe you can currently save anything, try starting with only 1-2% and work your way up as raises come, bonuses, etc. I will say if your company offers a matching program, please please please take advantage… The market in a great year may return 20%.. but a match can return 50%-100%, you will never get a better return on anything!

Some companies also have the option of a Roth 401K which will be those after tax dollars.. this will directly come out of your take home pay.. but you will not pay taxes again! This is typically beneficial if you believe you will be in a higher tax bracket in retirement.

For 2019 you can contribute up to $19K into your 401K, this does not include any match dollars.. heck if you have a 100% match you could theoretically save up to $38K a year, that’s huge!!!! And if you’re over 50 you can make catch up payments which will allow you to save up to $25K before any matching.