Posted:January 29, 2026
Categories: Estate Planning, Financial Planning, Insurance, Trusts, Wills
Whether you are a young professional, in the middle of your career, or at peak earnings, this article offers a detailed guide to prioritizing your savings. As with most financial decisions, there is no “one-size-fits-all” approach. Different professions and situations will dictate variances to the chart below. Also, some may agree or disagree on the placement/order, but this should be a good place to start for most.
The Hierarchy of Savings Chart
Create a Budget
First, you must understand your income and expenses and create a budget to meet your essential needs, such as housing, utilities, and food.
Establish Insurance Protection
The next priority should be to take catastrophic events off the table. This means ensuring that your budget includes insurance protection, such as:
Starter Emergency Fund
Before investing or paying down debt, aim to save about $1,000 or 1 month of expenses. This can cover insurance deductibles or minor disasters without taking on new debt.
Estate Planning
Create a will, a living will, and designate a financial power of attorney. Check beneficiary designations on all retirement and insurance accounts to ensure they match your current wishes. If you’re married, aim to hold assets jointly. If you have kids, ensure you’ve designated a guardian for them in your will. Inventory digital assets and provide access instructions.
401(k) Employer Match
If your employer offers a match on a retirement plan, like a 401(k) or 403(b), contribute exactly enough to get the full match. This is essentially a 100% return on investment and is categorized as “free money” that should not be left on the table.
High Interest Debt
Aggressively pay off debts with interest rates generally above 6-8%, such as credit cards or personal loans. Use the “avalanche” method, starting with the highest interest rate first, and working down. Paying off a debt with a 20% interest rate is the mathematical equivalent of earning a guaranteed 20% return on your money.
Full Emergency Fund
Expand your starter emergency fund to cover 3 to 6 months of living expenses.
Health Savings Accounts
If you are eligible for an HSA, this is often the next priority because it offers a “triple tax benefit”: tax-deductible contributions, tax-free growth, and tax-free withdrawals for medical expenses.
Roth IRA
Contributing to a Roth IRA should be next in line, even over a traditional IRA or unmatched 401(k) contributions. Roth IRAs allow you to withdraw contributions (not earnings) tax-free and penalty-free in an emergency, adding a layer of liquidity.
Max Out Retirement Plans (401k)
Maximize the remaining space in your employer-sponsored retirement accounts: 401(k), 403(b), to get the biggest tax break possible. If you’re young or early in your career, use the Roth option if available.
Taxable Account and Alternative Assets
Once all tax-advantaged accounts are maxed out, direct savings into a standard brokerage account. This provides liquidity (money you can access easily) compared to retirement accounts. This account can also help “pre-fund” future large expenses, such as a new car or a down payment on a mortgage. If you’re close to buying a home, this can easily come before maxing out your retirement plan.
529 College Savings, UGMA/UTMA, or Custodial Roth IRA
These are all examples of areas to plan for your child’s future. All families have different goals and plans for their kids, but this is a good spot for these savings.
Mortgage Payoff or Low-Interest Debt
This includes most mortgages and some student loans. Mathematically, you might earn more investing in the markets than you save by paying off a low-interest-rate loan, but paying it off offers psychological freedom.
Conclusion
Ultimately, building financial wealth is not just about saving money, but about deploying every dollar where it can work the hardest. Following a structured hierarchy ensures that you prioritize financial survival before wealth acceleration. Whether you are a young professional just starting out or at the peak of your earnings, the key is to maintain a disciplined plan that evolves from securing basic liquidity to maximizing long-term, tax-advantaged growth.
References
DISCLOSURES & INDEX DESCRIPTIONS
For disclosures and index definitions, please click here.
