Building an emergency fund and paying off debt is a massive milestone! Emma and Richard recently reached this exciting point and asked, “What’s next?” This is a common question for many who want to grow their wealth but aren’t sure where to start.
Here’s what they learned and how you can apply these strategies to your financial journey.
Optimizing Your Financial Buckets
For Emma and Richard, Their financial focus centered around two key “buckets” of money:
- Retirement Accounts (Qualified Accounts): These are accounts like your 401(k) or IRA that have penalties for early withdrawals.
- Liquid Accounts: These include accessible money in high-yield savings or investment accounts, ready for emergencies or opportunities. These accounts do not penalize for pulling money out at any age.
Balance Your Buckets
Emma and Richard had already built a solid retirement fund, giving them a Qualified Term (Qt) score of 2.2. They also had an emergency fund saved in cash, resulting in a Liquid Term (Lt) score of 0.5.
Initially, they considered continuing to pour every extra dollar into their 401(k). While this approach would grow their retirement savings, it would limit their financial flexibility.
By focusing on building their liquid accounts—their “confidence bucket”—they gained access to funds for immediate needs, unexpected expenses, or even future opportunities.
A balanced approach between the Qt and Lt buckets ensures both peace of mind and long-term growth potential.
Open a Non-Retirement Investment Account
Once your emergency fund is in place, consider opening a brokerage account (or investment account). This type of account isn’t tied to retirement, meaning you can access the money anytime without penalties. It’s a great way to grow your wealth beyond just saving in cash accounts.
The money in that account is then invested in the stock market. Emma and Richard can invest that money themselves by buying stocks, bonds, mutual funds or ETFs through platforms like Fidelity, Charles Schwab, or Vanguard. If Emma and Richard don’t want to invest the money themselves there are great platforms like Betterment or Wealthfront that will invest your money for you for a small fee.
This flexibility allowed them to plan for future goals like buying a home, taking dream vacations, or even starting a business one day.
Leverage Your Savings Rate
A strong savings rate is a game-changer. Anyone saving between 10% and 20% of their income is setting themselves up for success.
Emma and Richard were saving 16% of their gross income—well above the national average. Here’s how they distributed it:
- Maximize the employer match in their 401(k) (most employers require you to contribute 4%-6% of income before they’ll match, but check with your HR rep).
- Allocate the remainder to their brokerage account until their liquid savings felt robust.
This strategy ensures you’re taking advantage of free money while building accessible wealth.
Revisit Regularly
Financial plans aren’t one-size-fits-all and over time your plan needs to change. Emma and Richard planned to revisit their strategy once their Lt reaches a 1.0. Regular check-ins with an Elements Money coach can help you adjust based on your changing goals and life circumstances.
