1. Save $1,000.

If you don’t do this first, everything else is pointless. Most Americans can’t cover a $1,000 emergency without using a credit card. Save $1,000 for small emergencies and leave it in a High Yield Savings Account. Do a Google search for High Yield Savings Accounts, my favorite is Ally Bank.

2. Pay off all debt except your mortgage

Consumer debt is keeping Americans poor and living paycheck to paycheck. We have become too comfortable with robbing our future selves and keep ourselves stuck paying for things we purchased in the past. You could be getting 10% on your money in the stock market, but lose 23% paying interest on a credit card (the average interest rate these days). Make the minimum payments on all debt, and focus your income on paying the smallest debt first. Psychologically, this gives you fast wins and leads to greater momentum as you are paying down your debt. This method is called the “Snowball Method”, and is the method I used to tackle $13,000 of credit card debt.

3. Build your emergency fund to 3-6 months of living expenses

Once you are out of debt above 8% and still have your $1,000 emergency fund in a HYSA (High Yield Savings Account), increase that amount to 3-6 months of living expenses. For me, I don’t include things like subscriptions, dining out, and entertainment in my monthly number because if an emergency were to happen, I would cut those things out. For me, $3,000 a month will pay for the basics like food, housing, transportation. Multiplied by 3 is $9,000 and 6 is $18,000. Your emergency fund is for emergencies or expenses you didn’t expect, not for expected expenses you can prepare for (that includes car repairs).

4. Get your employer match on your company sponsored 401K

If your company offers a match, go get your free money. Ask your HR department if your company offers this, and my bet is that they do. If you are not taking advantage of a 401k match, you are leaving free money on the table. For example, if you are making $50,000 a year and your employer is offering a 4% match on your salary, that means if you contribute 4% of your income, which is $2,000, you will get a free $2,000 from your employer toward your 401k. The money you put in is pretax money and reduces the amount of taxable income you report at the end of the year for tax season.

5. Max out your Roth IRA

If you don’t have a Roth IRA, it is easy to open one and start contributing to it. My favorite brokerages are Fidelity, Vanguard, and Charles Schwab. The max amount you can contribute to this account is capped at $7,000 for 2024, and $7,000 for 2025. You contribute after tax money, or money that you are paid with after government taxes, health insurance, and 401k are taken out. Common beginner investor mistakes are not investing the money once you have funded the account. You must choose an investment with the dollars you used to fund the account. By the time you retire, all the withdraws you take out at retirement is tax-free.

6. Max out your 401k

The max you can fund your 401k is $23,000 in 2024, and $23,500 in 2025. Now I know what you’re thinking. That’s a lot of money! Yet, the majority of millionaires who have invested consistently become millionaires in their 401k. Because you contribute pretax money to your 401k, your taxable income at the end of the year is further reduced. If you made $50,000 this year, you will only get taxed on $27,000 of earnings. This year marks the second year I have maxed my 401k and those tax reimbursements were big last year!

7. Max out your Health Savings Account (HSA)

This only applies to you if you have a High Deductible Health Plan. This helps you save on taxes in 3 different ways. Just like the 401k, the HSA lets you contribute to the account pre-tax and lowers your taxable income. And just like the Roth IRA, this account also offers tax free growth and tax free withdraws for medical expenses. For 2024, the max you can contribute for self-only coverage is $4,150, and for family coverage it is $8,300. For 2025, the HSA contribution limit is $4,300 for individual and $8,550 for a family. Just like the Roth IRA, you must choose the investments in this plan. At least $1,000 of your money must remain in the cash portion of this account.

8. Invest in a Taxable Brokerage Account

There is no limit for how much you can contribute to this account, but you are subject to capital gains tax. If you sell assets for a profit, short term capital gains, or assets held less than a year, are taxed at the same rate as your ordinary income, and long term capital gains for assets held greater than 1 year, are taxed at either 0%, 15%, or 20% which is based on your taxable income. The higher your income, the higher your long-term capital gains tax rate. Personally, I would not withdraw from this account unless I have been invested for at least 5 years. For those wanting to retire early, this account is a great bridge account to float you before you can start withdrawing from retirement accounts.

9. Pay off your house

Why is this last? Because if you have been prioritizing investing your income, returns in the stock market typically gives you a better return than paying off your home. If your interest rate is above 6%, however, it gets more difficult to justify doing this so late and you may consider paying off your home earlier than step 9. Additionally, if you are older than 45 years old, then paying off your house becomes more important. Based on the historical returns of the S&P 500, if you are 20, every dollar you invest has the potential to become $88.35. If you are 45, every dollar you invest has the potential to become $4.46 (Source: Moneyguy.com/resources).