Financial Planning Strategies: Savings Waterfall
Looking for the best way to save? Not sure which accounts you should open or take advantage of? One strategy we’d recommend is the savings waterfall—it’s a strategic and straightforward method that will help you make progress toward the future you’re planning for.
The idea behind the savings waterfall is that you start by allocating all of your savings to the most important and/or beneficial options first—then, as you max out those options and have more to save, you move down to the next step on the list.
Step 1: Build an Emergency Fund
The absolute first thing you should focus on when starting to save is an emergency fund. We’d recommend setting aside at least 3–6 months of essential expenses (rent/mortgage, utilities, food, insurance, etc.). That way, you have a safety net in the event of job loss or unexpected expenses.A Money Market account is a great choice for an emergency fund. You’ll have easy access to your money, and you’ll earn interest while it sits in the account. Once you’ve established your emergency fund, you’re ready to move on to step 2.
Step 2: Contribute to 401(k) Up to Employer Match1
Employer match = free money. Don’t leave it on the table. Before moving on to the next step on the list, make sure you’re contributing enough to get the full match that your employer is offering (often 4–6% of your salary).
Step 3: Pay Off High-Interest Debt
Next, focus on your debt. And pay special attention to any debt that’s got higher interest rates. The reason why this is so early in the waterfall is because interest on credit cards or loans often can exceed any investment returns you may gain by saving in other ways.
Step 4: Fund an IRA (Traditional or Roth)1
If you’re getting the full employer match that’s offered with your 401(k), allocate additional savings to an IRA for the tax advantages and flexibility. There are two types of IRAs to choose from: traditional or Roth. To learn more about the differences, and which might be better for you, read our retirement options article.Before moving on to the next step in the waterfall, make sure you’re contributing up to your annual limit (for 2026, that’s $7,500 for individuals under 50 and $8,600 for individuals over age 50).
Step 5: Max Out 401(k)1
If you’ve met your limit with an IRA, go back to contributing to your 401(k) account for additional tax-deferred savings growth. You can increase your contributions beyond the match until you hit the annual limit (in 2026, that’s $24,500 for individuals under 50 and $32,500 for individuals over 50).
Step 6: Health Savings Account (HSA) If Eligible1,2
Move next to a health savings account, if you’re eligible, because of the triple tax advantage that it offers: contributions are pre-tax, anything you save benefits from tax-free growth, and all withdrawals on qualified medical expenses are tax-free. Non-qualified withdrawals may be subject to taxes and penalties.If you have a high-deductible health plan, contribute up to your annual limit.
Step 7: Additional Savings & Investments
Now that you’ve made the most of the first six savings options on the list, you can move on to additional savings accounts and investments. For short-term goals, a Money Market or CD account could be beneficial, and for long-term investing beyond your retirement accounts, consider a taxable brokerage account.1
If you'd like to talk through any part of the process or decide what additional accounts would best fit your financial goals, speak with one of our bankers today.
Information provided for educational purposes only. Consult financial, legal, and tax advisors.
2United's HSA portfolio has been sold to and is now managed by HSA Bank.
