Where to save now

1. Contribute up to the match to your 401(k) or other workplace savings plan.

If you have a 401(k), 403(b), or 457 plan and your employer offers a matching retirement contribution, take advantage of it. The matching contribution is like getting "free" money. And you get the added potential benefits of any tax-deferred growth and compounding returns.

The sooner you start, the more potential your money has to grow. Even if you are in your thirties or forties, it's not too late. If you're age 50 or older, you may be able to add extra "catch-up" contributions to your workplace savings plan.

One caveat: if your employer's matching contribution is low (less than 50%) and you have credit card debt with an interest rate of more than 25%, paying down the debt typically makes the most sense.

2. Pay down high-interest credit card debt.

If your interest rate is high on your credit card debt, more than 9% for example, use any extra savings to pay down the balance. If you have multiple accounts, you can work on the one with the highest interest rate first.

Continue to make the minimum required payments on the other cards (so you don't get hit with any penalties). When that first card is paid off, you move on to putting your extra money toward paying off the next. Each card gets easier to pay off, because you have more money to work with. You can do this until you're out from under all your high-interest debt.

3. Contribute the maximum to your to your 401(k) or other workplace savings plan.

It makes sense to contribute the maximum to a workplace savings plan or other retirement accounts before tackling low-interest or tax-advantaged debt. That's because the amount you need to save for even basic expenses in retirement can be hundreds of thousands of dollars, or more. Building tax-deferred savings early makes sense. You don't want to be borrowing money for living expenses later. You may be able to contribute up to $16,500 to your 401(k) or other workplace savings account for 2009. If you are age 50 or over, you might be able to contribute up to $22,000.

4. Fund an IRA.

When you've maxed out your 401(k), consider other investment choices such as an Roth IRA. If you don't qualify for one because of your income, a traditional IRA might be another option. The annual IRA contribution limit for 2011 is $5,000 ($6,000 if you are age 50 or older). To make it easy, set up your IRA contributions to be automatic, as they are for 401(k)s.

5. Start working on other key goals.

Automatic investing plans can also work for other saving goals. Have a set amount of money transferred each month into an investment account from your bank or paycheck.

When saving for a child's college expenses, consider tax-advantaged accounts like 529 college savings plans and Coverdell Education Saving Accounts. Again, set up automatic investments to make it easy.

Next steps

Taking steps to get rid of high-interest debt and set aside money for retirement and college is not only financially savvy, it's also good for you emotionally. Living under a burden of debt and financial uncertainty is stressful. Being prepared isn't.

https://guidance.fidelity.com/viewpoints/where-to-save-now