While it's natural to focus on expenses that are potentially right around the corner, preparing for financial needs that are further out can be just as important. Whether it's starting a business in a few years or putting away money for your eventual retirement, achieving those bigger objectives takes time.
As you work toward savings goals, you'll need to focus not only on how much you'll save but where you're putting that money. We've got you covered. Here are several budgeting strategies and long-term savings options to get you on track.
The 50/30/20 Rule
This 50/30/20 rule is a long-standing budgeting strategy that helps you steadily increase your savings rate. The idea is straightforward - divide your after-tax income into three categories.
| Category | Percentage | Examples |
|---|---|---|
| Essentials | 50% | Rent or mortgage, groceries, utilities, loan payments |
| Discretionary Expenses | 30% | Dining out, entertainment, new clothes, hobbies |
| Savings | 20% | Emergency fund, retirement accounts, long-term goals |
If you stick with this system, the results can be powerful. Take a moment to calculate 20% of your take-home pay. You might be surprised at how much you could be setting aside for future needs.
The 50/30/20 breakdown won’t fit every lifestyle. Saving 20% may feel challenging if you:
- Live in a high-cost area
- Have significant student loan payments
- Are catching up on expenses.
That’s okay - you can customize the percentages to what’s realistic for you while still pushing yourself to save more over time. Even if you don’t follow the formula exactly, simply thinking about your spending in these three categories can help you make better decisions and direct your money toward what matters most.
Automate Your Contributions
While the 50/30/20 rule is straightforward, putting it into practice can feel challenging. One helpful way to avoid spending the 20% you’ve set aside for long-term goals is to automate your savings.
Employer retirement plan: If you have access to a workplace plan, contributions are often simple to “set and forget.” Money is taken directly from your paycheck, which helps keep it out of your spending budget.
Other savings targets: Try to treat your additional savings the same way:
- Savings account: Set up an automatic draft that moves money from your checking account right after each payday.
- Brokerage account: Use recurring transfers to steadily build your investments.
- Individual retirement account (IRA): Schedule automatic contributions so you stay on track without thinking about it.
Automation helps you stay consistent and reduces the temptation to spend money meant for your future.
Savings Snowball
The savings snowball can help you stay focused as you work toward different financial goals. The idea is simple: You list your goals in order of importance - such as building an emergency fund, saving for a home, or adding to retirement accounts - and concentrate on the top priority first. Once that’s complete, you move to the next one.
For example, if you aim to have $20,000 in your emergency account:
- Set your first goal.
- Direct most of your savings toward completing that primary goal.
- After reaching it, shift your focus to the next goal, such as a home down payment.
- Continue working down your list until each target is on track.
Prioritizing savings goals doesn't mean you can't work on multiple goals at a time. Even if you're amassing an emergency fund, you may want to contribute enough to a workplace retirement plan to get your employer's match if it's offered. Otherwise, you'd leave that "free" money on the table. It's absolutely OK to allocate money to other purposes as long as you don't lose sight of your main priority.
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Use a Budgeting App
Creating different buckets for your money might sound straightforward. But keeping track of where each dollar goes every month is often where people run into trouble when trying to increase their savings.
Budgeting apps can make this process easier by giving you a clearer picture of your finances. They provide:
- Real-time account information pulled directly from your financial accounts
- A holistic view of your spending patterns across categories
- Automatic expense categorization so you can spot habits that may slow your progress like dining out too often or spending too much on clothing
You can also use them to create and track savings goals, allowing you to see where you stand relative to your target amount.
Where to Put the Money You're Able to Save
As you add to your savings using the strategies mentioned, you'll want to ensure you're making the most out of that money. Here's a look at some of the kinds of accounts you can use to save your money:
Savings Accounts
For money you may need within the next few years, keeping it protected from potential loss is the main goal. Here are three common options:
- Emergency Fund (Traditional Bank Account): A traditional bank account can help safeguard your savings from market fluctuations. Some of the key benefits are it is best for money needed soon, offers federal protection on deposits up to $250,000, and interest rates are typically low, but the focus is safety.
- High-yield savings account: Online banks may offer a slightly higher return compared to traditional banks. It pays higher interest than most standard savings accounts. It may not include a debit card but access is usually available through electronic transfers to another account.
- Money Market Account: Good for those who want easy access along with check-writing or debit card options. Some of the benefits are FDIC-insured up to the applicable limits, some accounts provide tiered interest rates, with higher rates for larger balances and it includes debit card and check-writing features that many savers find convenient.
Investment Accounts
If you're preparing for a goal that’s still a few years out - such as a home down payment, a wedding, or launching a business - some market exposure may offer growth opportunities over time.
Understanding Market Risk: Investment accounts from a brokerage, mutual fund company, or insurance carrier do not provide the principal protection that comes with a depository account. Key points to keep in mind:
- Stocks and bonds can fluctuate in value.
- Holding investments for longer periods can help give them time to stabilize.
- Growth is never guaranteed, and values may decline.
- Past performance does not indicate future results.
Choosing Between Stocks and Bonds: Although market movements are unpredictable, certain patterns can help guide expectations:
| Investment Type | Typical Use Case | Risk Level | Time Horizon |
|---|---|---|---|
| Investment-grade bonds | Investors who won’t need funds for at least three years | Lower relative risk | 3+ years |
| Stocks | Long-term investors seeking growth | Higher market risk | 7+ years |
Adjusting Your Asset Mix: Your portfolio can be shaped around your comfort with risk and your time frame.
- More conservative or short-term investors: Tending toward highly rated bonds may align better with your goals.
- Long-term investors (10+ years): A stock-heavy mix may offer the growth potential you're aiming for.
Before taking any action, it's wise to discuss your options with a financial professional who can provide a personalized look at your situation.
College Savings Accounts
If one of your long-term financial goals is paying for a college education, a 529 plan may help you work toward that aim. These state-run plans let you participate in the growth potential of the stock and bond markets while also offering tax advantages.
Tax Benefits: The tax treatment of a 529 plan can be appealing:
- No federal income tax on earnings when the beneficiary - typically yourself, your child, or your grandchild - uses the funds for qualified education expenses.
- Most states do not tax qualified withdrawals, so tuition, fees, and room and board can often be covered without state taxes.
- Some states offer tax breaks on contributions, up to certain limits.
Types of 529 Plans: 529 plans come in two main forms. Each works differently, but both are designed to help families save for education.
| Feature | Prepaid 529 Plan | Education Savings Plan |
|---|---|---|
| How it Works | Buy college credits at current rates | Invest contributions in market-based options |
| Typical Schools | Participating public colleges | Any eligible college or university |
| Investment Choice | Not investment-based | Choice of funds or portfolios |
| Risk | Lower (tuition-based) | Market-based investment risk |
529 plans also allow up to $10,000 per year to be used for tuition at private K-12 schools. Keep in mind that investment options in an education savings plan carry the same market risks as other stock and bond investments noted earlier.
Retirement Accounts
For many people, retirement is the biggest long-term savings goal. Social Security may help supplement income later in life, but it usually isn’t enough to cover everyday expenses. That means building your own nest egg is key. Keep in mind that investment options in retirement plans generally carry the same market-based risks as other investments.
Employer-Sponsored Retirement Plans: If your employer offers a retirement plan, it’s often a strong place to begin.
Common benefits include:
- Employer matching contributions
- Automatic payroll deductions
- A lineup of investment choices
Typical investment options may include:
- Mutual funds
- Target date funds
- Stable value funds
Traditional 401(k): 401(k)s offer tax benefits that can help increase your long-term growth.
- Contributions aren’t counted as taxable income.
- Earnings grow tax-deferred.
- Withdrawals are taxed at your ordinary income rate (as long as they occur after age 59½).
- Early withdrawals generally face a 10% penalty.
Roth Versions of Workplace Plans: Some employers provide a Roth option, which allows you to delay the tax benefits until retirement. You contribute post-tax money to your account but typically don't have to pay taxes on withdrawals as long you've owned the account for at least five years and are at least age 59½. These can be advantageous for younger workers, in particular, who often reach a higher tax bracket by the time they retire.
Individuals Retirement Accounts: IRAs offer similar tax benefits and can be a useful option for people without a workplace plan or who have already contributed the maximum to their employer account. Some of the benefits include:
- Often offer more mutual fund and ETF options than employer plans.
- Some providers also allow the purchase of individual stocks and bonds.
- For 2026, contribution limits are:
- Up to $7,500 per year for individuals under age 50
- Up to $8,600 per year for individuals age 50 and older1
Final Thoughts
When weighing your long-term savings options, it's important to consider your individual situation and make decisions based on what's right for you. If you think you could benefit from having a helping set of eyes and hands, consider reaching out to a financial professional, who provides customized insights and guidance.
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Sources
- 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500. https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500.
