← Money Basics After High School · about 50 min
Saving and investing basics
Emergency fund first, then let time and compounding do the heavy lifting.
The order of operations
- 1. Starter emergency fund: $500–$1,000 in savings for surprises like a flat tire.
- 2. Get the full employer 401(k) match, if you have one. It's free money.
- 3. Pay off high-interest debt (credit cards).
- 4. Build the full emergency fund: 3–6 months of expenses.
- 5. Invest more for the long term: a Roth IRA, more in the 401(k).
Words you need
- Emergency fund
- Cash in a savings account for job loss or surprise bills. Not invested, because you might need it next week.
- 401(k)
- A retirement account through your job. Money comes out of your paycheck before tax. You can put in up to $24,500 a year (2026).
- Employer match
- Your employer adds money when you contribute, like 50¢ for every $1 up to 6% of your pay. Not taking it is turning down part of your pay.
- Roth IRA
- An account you open yourself. You put in money you've already paid tax on, and it grows tax-free: no tax when you take it out in retirement. Limit: $7,500 a year (2026), and you need earned income.
- Stock
- A tiny piece of ownership in one company.
- Index fund
- One fund that owns small pieces of hundreds of companies (like the S&P 500), so one company failing barely matters. Low fees. A common default for beginners.
Worked example: start at 18 or 28?
Two friends each invest $200 a month in an index fund. Assume it grows 7% a year (an example, not a promise; real returns go up and down). Alex starts at 18. Sam waits until 28. Both stop at 65.
- Alex: 47 years of deposits
$200 × 12 × 47 = $112,800 put in - Alex at 65 (calculator)
≈ $815,179 - Sam: 37 years of deposits
$200 × 12 × 37 = $88,800 put in - Sam at 65 (calculator)
≈ $397,005 - Alex put in only $24,000 more…
$815,179 − $397,005 = $418,174 more at 65
Those first 10 years roughly double the result. Time does more of the work than the size of the deposits.
Worked example: the match
You earn $40,000. Your employer matches 50% of what you put in, up to 6% of your pay.
- You put in 6%
$40,000 × 0.06 = $2,400 - Employer adds 50% of that
$2,400 × 0.50 = $1,200 - Instant return on your money
$1,200 ÷ $2,400 = 50%
You get $1,200 a year for free. Putting in only 3% would leave $600 of it on the table.
Try it
Use the compound calculator as an investing estimate: put 7 in the APY box as an example average return, and try 10, 30, and 47 years.
Compound interest calculator
Assumes the APY stays the same and deposits land at the end of each month. Real rates change.
Practice
Your must-pay expenses are $1,800 a month. How big should a 3-month emergency fund be? A 6-month one?
Show answer
$1,800 × 3 = $5,400. $1,800 × 6 = $10,800.
Rule of 72: divide 72 by the yearly return to estimate how many years money takes to double. At 7%, how long?
Show answer
72 ÷ 7 ≈ 10.3 years.
Your employer matches 100% up to 4% of pay. You earn $30,000 and put in 4%. How much does your employer add?
Show answer
$30,000 × 0.04 = $1,200 from you, and $1,200 from your employer.
Why keep an emergency fund in savings instead of stocks?
Show answer
Stocks can drop 30% or more in a bad year, right when you might lose a job. Emergency money needs to be there and stable.
A friend says to put everything into one hot stock. What's the risk compared to an index fund?
Show answer
If that one company struggles, you could lose most of it (see the Nokia case study). An index fund spreads your money over hundreds of companies.
Can you…
Sources and dates
- IRS: 401(k) limit increases to $24,500 for 2026, IRA limit to $7,500 · as of 2026
- IRS: 401(k) limit increases to $24,500 for 2026, IRA limit to $7,500 · as of 2026
- Investor.gov (SEC): Index fund · as of Oct 2026
- Investor.gov (SEC): Diversify your investments · as of Oct 2026