Setting up Your Savings Ladder

Where do you put the savings portion of your paycheck?  What do you do with the money you have made so far that you don’t know what to do with it? First, you need to set up your savings ladder.

Your savings ladder is just a step-by-step guide to where you should put all your savings.

When you have a clear guide and clear goals about where your money goes, then you don’t need to think and agonize about where your savings should go; the less you have to think about when it comes to your money, the better!

I like to simplify things as much as possible. That is why I created the savings ladder for myself. It is a clear guide to where all of my savings should go. In addition, it takes so much of the emotional energy out of deciding where to put my money.

Welcome to the Savings Ladder!

The process is simple; you move up the ladder and do the next step when you complete one step. If you need to take money out of a ladder step, climb down one step, and start over. The point is to continue moving up the ladder, but if you have to take a step down- it’s ok! The ladder is made for climbing up and down!

What To Do With My Saved Money?

You saved the money. Now what? What to do with Saved Money?

The Ladder Rungs

Life Happens Fund: Put away 1,000 in this fund. This money should be accessible to you in times of emergency. I used to call this my Emergency Fund, but I have since changed the name to the Life Happens Fund. Because Life Happens, and you can’t possibly plan for everything. It can be in a checking account or a simple savings account. You do not want it tied up in something that takes a while to withdraw or has withdrawal penalties.

I used to think that this should be for emergencies only, but I decided that this is really for things you didn’t budget for because you couldn’t predict them or didn’t know you had to budget for.

Really, you should try to budget for events as much as possible. For example, back-to-school expenses come up every year and can be planned. Holidays, gifts, clothes, etc., should all be part of your budget, and you should have an “Envelope” for each. Of course, it would be best if you did not take things like that out of the Life Happens Fund. BUT… if you would otherwise go into debt for it, then, by all means, take it out of this fund. This should act as a buffer between you and debt.

This will help your cash flow unexpected expenses and keep you debt-free and able to handle life’s surprises. Hopefully, you will never touch this money- but if you have to withdraw money, then immediately replenish the account, so it has $1,000 in it.

Here is an example of an easy account to open:

Retirement: Take $6,000 and put in a Roth IRA (or SEP IRA if self-employed).

Why do I suggest putting money away for retirement as the second step?

There are two reasons for this:

1. Compound Interest- the earlier you put in money, the more it grows and accumulates interest.

2. Usually, when things get tough (as they usually do), the first thing people do is lower their long-term saving contributions. By putting this money away now, you are making sure that at least you have some form of long-term savings put away.

The best way to create a financial plan is to assume that you will have less money later in life, not more. That way, if that is true, you have planned appropriately. If you have more money later in life- you will be richer.


The easiest way to do this is to open a Targeted Retirement Account. Pick an account that allows withdrawals in the year you plan to retire (at age 59 1/2) and max it out every year as soon as possible. The maximum contributions are $6,000 for someone filing taxes independently. Keep in mind that these accounts have pros and cons, just like all investment options.

However, in my own personal opinion, these are the easiest to “set and forget” for the uninitiated investor who needs to set up a retirement account- which you should do as soon as possible- COMPOUND INTEREST. So yes, if you are 18 years old, it’s not too early to start thinking about retirement.

Some accounts need a large minimum deposit to open. If you don’t have that kind of money, open a savings account such as Barclays or Ally and deposit the money there. Once you reach the minimum deposit amount, you can open your account.

I am not an expert on investing- so I won’t tell you what to do besides to open the account. But here are some links to help you get started!

Vanguard Target Retirement Fund:
Vanguard SEP:

3-6 Months savings: This is the “Emergency Fund.” Take all your expenses, multiply that by 6, or take only the bare minimum and multiply by 3. This is the amount that you need to have in this account. These savings should also be fairly easy to access. A simple savings account should do the trick. No CDs or mutual funds. You will not make money off this account- you want it there when you need it. Of course, if you can put it in a savings account that pays interest, that will work in your favor!

Capital One 360 works for this also:
Barclays Bank-

Intermediate Savings: What are your upcoming big expenses? Finishing your degree? Going to graduate school? Are you planning a wedding? If none of these apply, then you can start putting money away for a house. This account should be a money-making account, but you don’t want something too risky.

A good mutual fund or index fund should do the trick. You want the money to work for you, but you don’t want to take too many risks as you may need the money soon. Even if you don’t, it’s a good idea to have money in an account that makes money but is not too risky. The amount you put in this account will vary based on your needs.

Vanguard Star:
Or check to compare different options.

The Sky is the Limit: This is where you can get creative and get rich. Do you have enough for school? For a wedding? For a down payment on a house (or getting there)? Start diversifying. Put your savings money in different brokerage accounts, index funds, mutual funds, CDs, start trading, etc. Never put all or most of your money in one place, and don’t invest more than you can afford to lose. This is where you start to accumulate assets.

At this point, you are ready to start some real investing. I have not reached this point yet, so I can only point you to the experts to help you. The Smart Investor has many great investing guides, like this one about How to Choose The Right Broker For Your Needs, where they also break down the different types of brokerage accounts and what fees and limitations are involved with each one.

Good Luck!

Hi! I am a millennial mom with a passion for personal finance. I have always been “into” personal finance but got inspired to start my blog after a period of extended unemployment. That experience really changed the way I viewed my relationship with money and the importance of accessible personal finance education.

4 thoughts on “Setting up Your Savings Ladder”

  1. When I started my Roth IRA from scratch I went with T.Rowe Price because they let me start with no deposit as long as I set up an automatic investment. Then, when the account was large enough it got moved over to Vanguard.

    Thanks for the article!

    • Thanks for the comment! That is a great idea if you don’t have the minimum deposit to start. Start with as much as you can even if it is not a lot!

  2. Great layout of info on your post A Dime Saved.
    WRT our emergency fund, we make a decent return too. We use a simple and safe strategy. We regularly open new online savings accounts that pay sign-up bonuses. I believe your Capital One link pays a sign-up bonus too. We had an account with them but can’t use it now (if you had an account since 2016 you can’t get another bonus).
    The bonus we got from Discover Online Savings was $200. I believe we got a larger sign-up bonus from Barclay’s Online Savings a few years ago. Both pay ~2% interest (was 1.5% not long ago; interest rates are going up). Bonus + interest gets us about 4%/year. It takes less than an hour to move the money around. I look at it as $200/hr. in return. We always check the requirements, which vary for sure.
    We use Vanguard funds also for some of our investments. This year we setup a Solo 401(k) with Vanguard and stopped using the SEP (for self-employed/biz owners). The Solo 401(k) allows us to put more money, pre-tax, into our retirement fund; more than the SEP.
    Again, thanks for the post – great info.

    • Thanks for all the this great info! Yes- many banks offer sign-up bonuses. I originally started with capital one when they had a large a very large sign-up bonus. It really jump started our emergency fund so its a great idea to take advantage. I currently just have the Vanguard STAR and ROTH IRA but I will look into other ones as well once I have more money to put in!


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