A 5-Step Guide to Layered Savings

So, you’ve landed a great job, you are no longer living paycheck to paycheck, and you’re ready to start accumulating wealth. But now, how do you get started on building your long-term financial future? It can seem daunting to get the ball rolling — but have no fear. We’ve put together a simple and linear guide for near-term financial preparedness to set yourself up for future financial success.

Step 1: The Emergency Fund — (aka, “Rainy Day Fund”) a must have

Just like how squirrels store some of their acorns for the winter, it’s best to be prepared in case an unexpected financial storm comes your way.

• What is it? An emergency fund is a pool of money that is meant to keep you afloat when the unexpected occurs, like the sudden loss of your job or large one-time expenses that you didn’t see coming.
• How much? General rule of thumb is that an emergency fund should hold around three to six months of your regular spending obligations, depending on the other financial resources at your disposal and the speed at which you expect to be able to recover financially. If you’ve already started an emergency fund, now’s a good time to revisit your expenses and make sure you’re saving enough.
• In what form? Make sure emergency fund holdings are in cash or cash-like equivalents, such as money market funds. The key is that the money is at extremely low risk of loss and can be accessed quickly when needed. A common option is a simple savings account with the bank of your choice.

See a simple savings checklist

Step 2: The Big-Ticket Savings Fund — not always needed, but key when it is

Are you thinking of buying a car in the next few years? Or maybe you’re getting married next year? If you haven’t already set aside money for such a big expense, it might be time to do so.

• What is it? Big-ticket savings are funds earmarked for predictable, nonrecurring, large expenses expected to take place within the next few years. Setting-aside money for a major future cash outflow will allow you to avoid eating into your emergency fund or long-term savings, or taking on debt, when the expense comes due.
• How much? It depends on the total expense of the big-ticket item. Before you start saving, make sure you have a realistic sense of what it will cost.
• In what form? It is best to keep your big-ticket savings in cash or stable investments that are unlikely to lose material value if investment markets drop. Examples would be a money market fund or a diversified short-term bond fund.

Step 3: Retirement Savings — time is on your side

It can be painful to lock money away for the future, but this short-term pain will likely result in a whole lot of long-term gain. Two of the most common ways for saving for retirement are employer-sponsored retirement plans and IRAs.

Employer-sponsored retirement plan — great if you’re offered one

• What is it? A type of retirement investment account that is offered through employers and is often funded with contributions you make via your paycheck. Depending on the type of plan, employee-sponsored plans qualify for special tax treatment in order to incentivize people to save for retirement. The most recognizable type of employer-sponsored retirement plan is a 401(k), which is generally funded with pre-tax income, but some employers allow for an after-tax version, known as a Roth 401(k) plan.
• How much? How much you contribute depends on your cash flow, budget and short-term savings needs. Employees can contribute a maximum of $23,500 to a 401(k) in 2025 ($31,000 if over age 50). In addition, some employers will contribute to the 401(k) on their employees’ behalf, often matching the employee’s contribution up to a percentage of their salary. While a wonderful gesture, the employee match generally comes with strings attached, namely requiring the employee to be at the company for a certain number of years in order to receive 100% of the matching funds (known as “vesting”).
• In what form? The types of assets you can invest in are limited to what is provided by your company’s 401(k) administrator, but there’s often a selection of diversified equity and fixed income funds, as well as the occasional alternative investments. Often, your options will include “target date funds.” This type of fund is managed based on an assumed retirement year and can serve as a good option if you don’t want to spend time reviewing all of your plan’s investment options.

IRAs – adding more to the retirement bucket

• What is it? A type of retirement investment account that is separate from employer-sponsored retirement plans like 401(k)s. Anyone can contribute to an IRA if they have earned income. The contribution to a traditional IRA is tax-deductible if your earnings are under a certain amount. Like 401(K)s, IRAs also come in a Roth form.
• How much? The max IRA contribution remains $7,000 in 2025 ($8,000 if you’re over 50), which is much lower than what is allowed under employer-sponsored plans. But you may be eligible to contribute to an employer-sponsored plan and an IRA in the same year (see the IRA guidelines for more details).
• In what form? Unlike employer-sponsored retirement plans, IRAs provide you with access to most of the investable universe (ETFs, mutual funds, individual stocks, alternative investment funds, etc.). IRA accounts can be opened at any traditional brokerage firm but be sure to compare transaction fees, website navigation and customer service.

Step 4: Long-term Taxable Investment Accounts — letting your money make money

You set up your emergency fund, your big-ticket savings are in order, and you’ve maxed out your annual retirement savings. Keep it going with some long-term earnings via a taxable brokerage investment account.

• What is it? A non-retirement account that can be opened at any standard brokerage firm (Schwab, Fidelity, TD Ameritrade, etc.). Think of it as a bank account, but instead of keeping cash in the account, you invest in securities and funds.
• How much? As much as your cash flow and budget will allow.
• In what way? It’s often best to invest in diversified, low-cost mutual funds or exchange traded funds (ETFs), that are meant to provide capital appreciation over the long-term. However, if appropriate, you could also set up a separate account in order to try your hand at a bit of stock picking or invest in riskier individual assets. Importantly though, you should never invest more in speculative stocks than you are comfortable losing. Imagine that all such investments go to zero. If this impacts you financially, then you are putting too much at risk.

Step 5: Understand your equity compensation or awards — high potential reward, but concentrated risk

Some high-level employees, especially at start-ups, receive compensation through shares in the company. Consider it as another type of long-term, but conditional, investment.

• What is it? Equity compensation allows employees to obtain ownership in their company and (hopefully) participate financially in the company’s future successes. It generally comes in three forms: restricted stock, stock options and employee stock purchase plans.
• How much? There’s a whole host of considerations when it comes to participation in a company’s equity compensation program. But generally, when and how much to invest in equity awards should be part of a holistic financial plan that considers the savings and investments you’ve already accumulated, as well as your financial goals.
• In what way? Importantly, the acquisition of company shares is not free. You should understand the costs, taxes and rules associated with any equity compensation that you receive. Due to their complexity and variety, it’s best to speak with a wealth planner when you first receive any form of equity compensation.

Now that you’re on a clear road for professional success, it’s essential that you set yourself up for financial success. To help get you started saving toward your life goals, download our simple checklist. Then consider hiring a financial advisor to be sure you stay on track.