What's Your Goal for Long-Term Savings (and How Do You Plan to Get There)?

A couple happily walking while they think about their long term savings.

Key Takeaways

  • The 50/30/20 rule is a simple and effective strategy to increase savings. Allocate 50% of your income to essentials, 30% to discretionary expenses, and 20% to savings.
  • Automating your contributions to savings can help resist the temptation to spend money earmarked for long-term needs. Set up automatic drafts for your savings accounts and retirement plans.
  • The "savings snowball" method prioritizes savings goals, allowing you to focus on the most important objective first and gradually build your savings for multiple financial targets.
  • When saving for different goals, consider using different types of accounts such as savings accounts, investment accounts, college savings accounts (529 plans), and retirement accounts (401(k) and IRAs) to maximize potential returns and tax benefits.

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 time-honored strategy that can help you increase your savings rate over time. The concept is simple enough: Allocate 50% of your income to essentials, 30% to discretionary expenses and 20% to savings. Essentials include everything from rent or a mortgage payment to grocery and loan payments. If you're dining out or buying new clothes, those fall into the discretionary bucket.

The impact on your savings can be dramatic if you can make this system work. Calculate what 20% of your take-home pay is, and you may be surprised at how much you could be socking away for later needs.

Of course, the 50/30/20 breakdown isn't ideal for everyone's budget. If you live in a high-cost part of the country or are paying down student loans, the 20% savings portion might be ambitious. In that case, you can customize the formula to one that's both realistic and challenges you to save more. Even just getting yourself to think in terms of these three buckets can help you prioritize where your money goes.

Automate Your Contributions

While the 50/30/20 rule sounds simple enough, it can be tricky to put into effect. So how do you make it work? One way to resist the temptation to spend the 20% earmarked for long-term needs is automating when funds go to your savings.

If you have an employer retirement plan at work, contributions can be relatively easy to "set and forget." They usually come right out of your paycheck, so you avoid the urge to spend the money.

Ideally, your other savings targets would operate the same way. If you're building a savings account, you may want to set up an automatic draft that pulls money out of your checking account right after each payday. You can use a similar approach if you're setting aside money in a brokerage account or an individual retirement account (IRA).

Savings Snowball

For a lot of people, the "savings snowball" method can be an effective way to achieve your financial goals. With it, you prioritize your savings goals — whether it's your emergency fund, money for a new house or your retirement assets — and concentrate on the most important objective first. Then move on to your next savings goal and so forth.

For example, if you aim to have $20,000 in your emergency account, work on fully funding that first. Then move on to the next goal, such as saving for a down payment on a home. Your savings really can snowball this way, gradually growing until you're on track with every one of your savings targets.

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.

Use a Budgeting App

Creating different buckets for your money sounds simple enough. But actually tracking where each dollar goes each month? That's often the main stumbling block for people trying to increase their savings.

Budgeting apps can make that process simpler. Programs can pull real-time information from your financial accounts, giving you a holistic view of your spending patterns. Categorizing expenses can help you identify habits that might be holding you back, 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 that you may need in three years or less, consider keeping it in an emergency fund, to help safeguard it from a potential loss of value. That typically means simply putting it in an account with a bank. In recent years, these institutions haven't paid out much in the way of interest, but they offer protection up to $250,000 of your savings, backed by the federal government.

You might get a slightly better return with a high-yield savings account through an online bank. Not all of these accounts offer a debit card, but you can typically access your money through an electronic transfer to another account or institution.

If having an account with a debit card and check-writing capabilities is a priority, you might consider a money market account. Like other accounts at banks, they are FDIC-insured to a certain limit. Some offer tiered interest rates with higher ones for larger balances.

Investment accounts

What if you're saving for an expense that's a few years away? It might be a down payment on a home, a wedding or a new business venture. In that case, some market exposure could prove to be a valuable long-term savings option, offering the potential for growth.

To be clear, investment accounts — whether from a brokerage, mutual fund company or insurance carrier — don't offer the principal protection of a depository account. Stocks and bonds are subject to volatility, which means they can decrease in value. The longer you hold those assets, though, the more time you have for them to stabilize. Of course, investments cannot guarantee growth or sustainment of principal value; they may lose value over time. Past performance is not an indication of future results.

Although market movements are impossible to predict, investment-grade bonds have been an option often used by investors who don't need to touch their money for at least three years. Historically, stocks offer greater returns over long periods of time, but they do come with increased market risk. They're a better fit for investors with a time horizon of seven or more years.

You can adjust your asset mix to fit your risk tolerance and investment goals. If you're a conservative investor or are working with a relatively short time period, skewing your portfolio toward highly rated bonds might make more sense. Conversely, those looking to invest for a decade or more may find that a stock-heavy mix provides the growth potential they desire.

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, 529 plans are an option worth considering. These state-run plans allow you to tap into the potential growth of the stock and bond markets but also receive unique tax benefits.

The earnings that accrue in a 529 plan aren't subject to federal income tax as long as the beneficiary — typically yourself, your child or your grandchild — withdraws the money for qualified education expenses. In most cases, states won't tax those withdrawals either. So you can often use the money to cover tuition, fees, and room and board without the usual tax being taken out. Some states also offer tax breaks on the money you contribute toward the plan up to certain limits.

These qualified tuition plans come in two varieties. Prepaid 529 plans allow you to buy credits at participating colleges — usually public schools — at current rates. An education savings plan, though, operates more like a traditional investment account, where you choose from a menu of investment choices offered by the plan administrator. These often include mutual funds, exchange-traded funds (ETFs) and age-based portfolios that automatically shift your asset allocation over time. In addition to covering college expenses, 529 plans also allow you to use up to $10,000 per year to cover tuition at private K-12 schools. Bear in mind, investment options in 529 plans are subject to the same risks as other market-based investments discussed in the previous section.

Retirement accounts

For most people, there's no bigger savings goal than retirement. While Social Security may help supplement your income as you get older, it doesn't provide a big enough benefit for most Americans to live on. That means you'll likely need significant savings to maintain a comfortable lifestyle after leaving the workforce. Once again, begin by understanding that investment options in retirement plans may be subject to the same risks as other market-based investments.

If you're offered a retirement plan through your employer, that's usually a great place to start. Many organizations offer a match for a percentage of your contributions, which can dramatically boost your savings potential. Typically, they offer a menu where you can choose from several mutual funds, target date funds or stable value funds.

Qualified plans also provide tax advantages that increase your potential return. For example, the money you put into a traditional 401(k) doesn't count as taxable income, and any investment earnings grow on a tax-deferred basis. Any distributions are taxed at your ordinary rate as long as they meet set requirements, such as occurring after age 59½. Distributions from qualified plans that do not meet requirements are subject to a 10% penalty.

Some employers offer a Roth version of their retirement plan, 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.

IRAs offer similar tax benefits and may be a good choice for investors who don't have a workplace plan or have maxed out their contributions. Unlike 401(k)-style plans, they tend to offer more mutual fund and ETF options. Some IRA providers also allow you to purchase individual stocks and bonds. For 2024, individuals younger than age 50 with earned income can contribute up to $7,000 a year to IRAs; those 50 and older can contribute up to $8,000.1

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.

Save, Invest, Grow Your Wealth!

Save, Invest, Grow Your Wealth!

Take control of your financial future by budgeting, saving, and investing wisely.


  1. 401(k) limit increases to $23,000 for 2024, IRA limit rises to $7,000. https://www.irs.gov/newsroom/401k-limit-increases-to-23000-for-2024-ira-limit-rises-to-7000.

Related Budgeting & Saving Articles


Information provided is general and educational in nature, and all products or services discussed may not be provided by Western & Southern Financial Group or its member companies (“the Company”). The information is not intended to be, and should not be construed as, legal or tax advice. The Company does not provide legal or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. The Company makes no warranties with regard to the information or results obtained by its use. The Company disclaims any liability arising out of your use of, or reliance on, the information. Consult an attorney or tax advisor regarding your specific legal or tax situation.