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The Best Way To Invest Money To Avoid Taxes, According to John Liang

YouTubers often pitch investing tips, but few break down how to grow your money while keeping taxes to a minimum.

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In a video by financial creator John Liang, he outlined a practical, tax-efficient strategy for investing your paycheck in the right order, starting with protection and ending with growth.

While not flashy, your first priority needs to be saving money in an emergency fund. While Liang acknowledged that this is a savings account, not an investment account, having this in place can help your long-term investment strategy, as you can use this money in case of emergency rather than pulling money out of other investments.

Liang recommended having one month’s worth of expenses in a high-yield savings account as soon as possible. He advised building up the emergency fund from there while also funding other accounts.

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Liang called this “the only investment in which you’re going to get a 100% return on your money.”

If your employer matches 6% of your salary in a 401(k), contribute at least that much since it’s free money and offers tax-deferred growth.

While putting in enough money to get the employer match may not be possible in your financial situation, Fidelity advises budgeting and doing what you can to get as much of the employer match as possible, as that will help your finances over the long term.

Next, Liang recommended paying down debt with a high interest rate. “[Credit cards] could have interest rates going anywhere from 18% up to 28%,” Liang said. “That is doing you no favor. In fact, to me, that is like … a financial anchor that’s dragging you down.”

In fact, according to Equifax, carrying a lot of high-interest debt that’s not managed properly can lead to a lot of financial problems. For example, it can harm your credit score, which could make it harder to borrow money in the future if needed.

Liang suggested using either the debt avalanche (paying off the debt with the highest interest rate first) or snowball (paying off the debt with the smallest balance first) method. You can also consider 0% APR balance transfer cards, but only if you pay it off aggressively before the promotional period ends.

The money you put into an HSA is triple tax advantaged, per Liang. That means contributions aren’t taxed, the money in the account grows tax-free and you get tax-free withdrawals for qualified medical expenses.

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