How To Begin Financial Planning - Start With 401(k) Management

The thought of financial planning can be intimidating, especially if you’re just getting your feet wet. Maybe you have just launched your career or are beginning to really consider investing or saving for retirement. The choices available may look like an alphabet soup: 401k, IRA, HSA…

Let’s address the elephant if you have been holding out on getting financial help. What holds people back from hiring a financial advisor? The common possibilities include those individuals:

• Are afraid of fees.
• May feel judged.
• Don’t know who to trust.
• Might have anxiety or shame when addressing their finances.

Take a deep breath and know that at Scarborough Capital Management, we work with endless first-timers. To help you feel more at ease, we’ve put together a brief rundown of essential categories to consider.

As our example, for people who have kicked off their career or started a new one with employee retirement savings options, that’s when financial planning can get serious. When they experience a feeling of having the ability to accumulate more wealth, perhaps they are more inclined to reach out for help, to make sure they are doing it right.

Whatever the case, explore your options to plan with confidence.

How to Manage My Retirement Savings

Retirement savings are usually a vital category of asset accumulation. Social Security benefits will not be enough to last through retirement for most people. The earlier you start saving in retirement vehicles, the more your savings have time to appreciate.

There are two major types of retirement savings vehicles: 401(k)s and Individual Retirement Accounts (IRAs). Let’s take a look at each one.

401(k) Plans

A 401(k) plan is a tax-advantaged plan offered by employers, which has several significant advantages. Generally, you choose a percentage of your income to contribute.

First, the percentage you contribute is deducted from your paycheck before tax is taken out, which can result in considerable tax savings not only on that money but potentially on your overall salary. Your gross income available for taxation is reduced.

Second, your contributions grow tax-free until you withdraw the funds.

Third, many employers offer to match 401(k) plans, which means your employer will match the percentage you’re contributing by a certain amount. Say you make $40,000 per year, and you elect to save 5% or $2,000 per year. If your company offers a 50% match, they will contribute an additional 50%, or $1,000, annually. If your company offers a matching 401(k), not participating might leave money on the table.

The maximum 401(k) contribution per year is $24,500 for 2026, far higher than other retirement plans.

Depending on your generation, median total contribution rates (including those crucial employer matches) are on the rise. Here is where the averages sit today:

• Gen Z (1997–2012): Starting strong with an average balance of $13,500 and a total savings rate of 10.9%.
• Millennials (1981–1996): Hitting their stride with $67,300 tucked away and a healthy savings rate of 13.3%.
• Gen X (1965–1980): In peak earning years with an average balance of $103,952 and saving 15.2% of their income.
• Baby Boomers (1946–1964): Nearing the finish line with an average of $249,300 and a disciplined 16.9% savings rate.

While it’s encouraging to see savings rates climb as we age, there is a looming question for every generation: Will the finish line move before we reach it? If we look at the trajectory of these groups, maintaining a solid contribution rate for 30 years (assuming a 7% return) results in an estimated retirement nest egg of $1.1 million. However, for many Americans, the "magic number" for a truly comfortable retirement has recently hit $1.26 million.

Whether you are a Gen-Zer just starting your compound interest journey or a Baby Boomer fine-tuning your exit strategy, these benchmarks show that while we are saving more than ever, staying ahead of inflation and rising costs requires a proactive approach to every percentage point contributed.

IRA Accounts

IRAs are individual retirement accounts. There are two types: Traditional IRAs and Roth IRAs. Both are tax-advantaged, but the advantages manifest at different points in your life.

Your contributions to a traditional IRA can be deducted from your taxes every year, subject to certain income limitations. Contributions you make to both appreciate tax-deferred until you withdraw them.

You cannot deduct contributions from a Roth IRA, but you won't be taxed on the amount when you withdraw Roth IRA funds in retirement.

Contributions you make to both appreciate tax-free until you withdraw them. For 2026, the maximum IRA contribution is $7,500.

Health Savings Account

A Health Savings Account (HSA) is a type of tax-advantaged savings account intended for healthcare spending. Like 401(k)s, many are offered by employers, and contributions are made pre-tax, which can lower your annual gross income. (You can also open them yourself.)

Funds that you withdraw for qualified medical expenses are not taxed. They are portable (you can take them with you if you change employers), and you can roll over any unused amount every year.

To participate, though, you must be enrolled in a high-deductible health insurance plan. HSAs are complex, so be sure to read all the fine print.

How To Budget

Establishing a budget is a crucial foundation for your finances. It's easier to plan when your income and expenses are the same every month. If your costs are higher than your income, you’re living beyond your means. You might be going into debt, which can hamper your cash flow for the future and make it impossible to save.

“Budget” in this context just means keeping tabs on your monthly income versus expenses by category. If you’re overspending, look at your spending and find ways to cut costs. If you have excess cash every month, you can start putting this money to work to fund your future goals.

If you owe on credit cards, student loans, or other forms of debt, you’re not alone. Americans owe around $1.28 trillion, just in credit card debt. But part of optimizing your financial life is managing your debt because minimizing debt means you can further maximize your contributions to other assets.

Asset Accumulation

Assets are anything of value that can convert into cash and cash itself. If you have a checking account and a car, you have assets. Other forms of assets include stocks, bonds, Certificates of Deposit (CDs), houses, retirement funds, and anything else of significant value, such as collectibles or jewelry.

It’s essential to keep tabs on your assets just as you do your income. Once you begin an investment portfolio (stocks, bonds, and other cash instruments), it’s crucial to maintain an asset allocation among the choices that will allow maximum appreciation (such as stocks) while also protecting against market risk.

The performance of your assets, compared to your goals and tolerance for risk, should be monitored regularly to make sure the allocation is in alignment.

How a Financial Advisor Can Help

As you can see, financial planning can be exciting yet complicated. Talking with a financial advisor can be a wise move. A financial advisor can help you plan strategically and help ensure you don’t miss something that could help you reach your financial goals sooner.

Here at Scarborough Capital Management, each team member shares the passion for helping you live a more confident financial life.

The opinions voiced on this blog are for general informational purposes only and are not intended to provide or be a substitute for specific professional financial, tax or legal advice or recommendations for any individuals.