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Pay yourself first.
Prioritize your financial goals

These are the years to tackle competing long-term goals, like saving and investing for retirement and your kids' education. By prioritizing and planning, it's possible to strike a balance.

Cover the basics

As you're building wealth, it's a good rule of thumb to have:
  • Started investing for retirement by participating in your employer's 401(k), contributing enough to take advantage of any employer match
  • Prioritized paying off your high-interest revolving debt
  • Built up an emergency fund of at least 6 months (9-12 months if you can)

Put tax-deferred savings first

Should you save or pay down debts like a mortgage or college loan? Finding an appropriate balance between the two depends on your individual situation. Weigh the pros and cons.
Generally, experts say you should focus on maximizing tax-deferred savings first, but what you decide depends on your circumstances.
Tax-deferred (or "tax-advantaged") investments-like 401(k)s, Traditional IRAs, healthcare savings accounts and 529 plans-should be a top priority because your money has the opportunity to grow before the federal government taxes it. That means your initial investment is larger and as a result, you may have greater returns. Plus, the money you invest generally reduces your annual adjusted gross income and, potentially, your tax bill-although you may have to pay taxes on the invested amounts and returns when you withdraw them.
The rate of tax you pay may be lower at this time (or it may be higher), depending on a number of factors.

Make retirement a priority

For many people, planning for retirement is a careful balancing act between providing for their own retirement security and meeting the needs of family members.
Generally, the rule of thumb is to:

First, focus on maximizing your retirement contributions for the year, making sure to take advantage of your 401(k) employer match (if any) and contributing up to the IRS annual limit if you can.

Next, set aside money for college: Your child can borrow money for his or her education, but it's unlikely you'll be able to borrow for your retirement! When you invest for college with a 529 account, any earnings generated will be federal (and possibly state) income tax-free as long as withdrawals are used for qualified higher education expenses.

Of course, these are general guidelines - saving and investment decisions are personal and depend on a number of factors.
Try it:

Build budget "wiggle room" for extras

As your career hits its peak and your family grows, you may want a bigger home or car. And as you pay down debt, you may have more money to put toward long- and short-term goals, plus some extra for fun.
It's okay to spend: just build these purchases into your budget, keep your long-term goals in mind and don't lose sight of retirement.
Ready to get started?
Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.