Money is weird. One day you feel like a genius because you saved fifty bucks on a grocery run, and the next you’re staring at your 401(k) wondering if you’re actually sabotaging your future because you didn't understand how a Roth conversion works. It's stressful. Most of us just wing it, honestly. We pay the bills, throw some cash into a savings account, and hope the "future me" isn't living on cat food. But if you want to actually build wealth without losing your mind, you need a system. Specifically, you need the financial order of operations.
Think of it like a recipe. If you try to frost a cake while it’s still in the oven, you’re going to have a sticky, melted mess. Finance is the same. You can’t be worried about aggressive stock picking or real estate syndications if you can’t pay your electric bill or if you’re carrying 24% interest on a credit card. It sounds obvious, but you’d be surprised how many people jump to the "fun" stuff before they've handled the basics.
The Boring (But Essential) Foundation
The first step of the financial order of operations isn't sexy. It’s staying alive. Brian Preston and Bo Hanson from The Money Guy Show—who basically popularized this specific framework—call this "Deductibles Covered." Essentially, you need enough cash in a high-yield savings account to cover your highest insurance deductible. If your car insurance deductible is $1,000, you need $1,000. Period. This isn't your full emergency fund; it’s just a "don't let my life fall apart today" fund.
Why start here? Because life happens. Your water heater will leak. Your transmission will slip. Without this buffer, you'll end up putting those emergencies on a credit card, which creates a cycle of debt that is incredibly hard to break.
Once that’s set, you look at the employer match. This is literally the only time in life you get a 100% return on your investment instantly. If your boss says, "Hey, if you put in 6%, I’ll give you 6%," and you don't do it, you’re basically turning down a raise. It’s free money. Don't overthink the investment side yet; just get the match.
High-Interest Debt is an Emergency
We need to talk about credit cards. They are financial napalm. If you are carrying a balance at 20% or 25% interest, you are in a house fire. You cannot out-invest that. No index fund on the planet reliably returns 25% year after year.
Mathematically, paying off a credit card is the exact same thing as finding an investment with a guaranteed 25% return. You should be aggressive here. Cut the subscriptions. Eat the ramen. Do whatever it takes to kill the high-interest debt because it is the single biggest anchor holding your net worth underwater.
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The Emergency Fund Evolution
After the high-interest debt is gone, you breathe. Then, you build the "real" emergency fund. This is usually three to six months of expenses. If you’re a tenured teacher with low expenses, maybe three months is fine. If you’re a self-employed freelancer in a volatile industry, you probably want six or even nine months.
This money sits in a Boring™ account. It shouldn't be in the S&P 500. It shouldn't be in Bitcoin. It should be in a High-Yield Savings Account (HYSA) or a Money Market Fund where it's safe and liquid. You aren't trying to get rich off this money; you're buying insurance against the universe being a jerk.
Maximizing the Tax-Advantaged Buckets
Now we get into the heavy lifting of the financial order of operations. Once the debt is dead and the emergency fund is padded, it's time to look at IRAs and HSAs.
The Health Savings Account (HSA) is kookily powerful. It’s triple tax-advantaged: money goes in tax-free, grows tax-free, and comes out tax-free for medical expenses. If you’re healthy and can afford to pay for doctor visits out of pocket, you can treat the HSA like a "Stealth IRA," letting it grow for decades.
Then there's the Roth vs. Traditional debate. Generally, if you think your tax rate will be higher in the future, Roth is your best friend. You pay the taxes now, and Uncle Sam can't touch a penny of the growth or the withdrawals later. For most people early in their careers, the Roth IRA is the gold standard.
The 25% Rule
At this stage, the goal is to hit a 25% savings rate. This sounds high. It is high. But this is where the "wealth creator" magic happens. If you can shovel 25% of your gross income into investments, you are on the fast track to financial independence.
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- Max out the Roth IRA or Traditional IRA.
- Go back to your 401(k) or 403(b) and max that out ($23,500 limit for 2025/2026).
- If you still have money left over, you move to hyper-accumulation.
Hyper-accumulation is just a fancy way of saying "taxable brokerage accounts." This is where you put money when you’ve filled up all the government-sponsored buckets. It gives you flexibility. If you want to retire at 45, you can't easily touch your 401(k) without penalties, but your brokerage account is yours to use whenever you want.
The Low-Interest Debt Trap
People get really confused about mortgages. They see a 4% or 5% interest rate and want to pay it off early because "debt is bad."
Kinda.
But if the market is returning 7-10% over the long haul, every dollar you put toward a 4% mortgage is actually costing you the difference in potential gains. In the financial order of operations, paying off low-interest debt (like a mortgage or low-rate student loans) is usually one of the very last steps. It’s a "peace of mind" play, not a "math" play.
Wait until you’re hitting your 25% savings goal before you start throwing extra money at the house. If you’re 55 and looking at retirement, sure, pay it off. Being mortgage-free in retirement is a huge psychological win. But if you’re 30? Put that money to work in the market instead.
What Most People Get Wrong
The biggest mistake? Skipping steps. I see people trying to pick individual tech stocks or buy rental properties while they still have $15,000 in credit card debt. It’s ego. We want to feel like "investors," but if your balance sheet is leaking 20% to Chase or Amex, you aren't an investor; you’re a victim of compound interest working in reverse.
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Another common pitfall is "lifestyle creep." You get a raise, and suddenly you need a BMW. If you follow the order, that raise should first go toward filling the next bucket. If your 401(k) isn't maxed, the BMW waits. It’s about delayed gratification.
Real-World Nuance: The "Pre-Paid" Expenses
There are things the standard charts don't always mention. Kids. College. Weddings.
If you know you have a huge expense coming in two years, that money shouldn't follow the "investing" part of the order. It should stay in cash. Don't invest money you need in less than three to five years. The market is too volatile for that. If you’re saving for a house down payment, that’s a "Step 4" or "Step 5" priority that lives in a savings account, not a brokerage account.
Actionable Steps to Take Today
You don't need a PhD in finance to fix your life. You just need to know which bucket you're currently in and focus entirely on that.
- Audit your debt: List every single debt you have and its interest rate. Anything over 7-8% is a "red alert" priority.
- Check your match: Log into your HR portal. If you aren't contributing enough to get the full employer match, change that today. It’s the easiest win you’ll ever have.
- Calculate your number: Figure out what 25% of your gross income actually is. If you’re at 5%, don't panic. Just try to get to 6% next month. Incrementalism is the secret sauce.
- Automate everything: Set up your 401(k) and IRA contributions to happen automatically. If the money never hits your checking account, you won't miss it.
- Review your insurance: Ensure your "deductible fund" actually matches your current insurance policies. If you raised your deductible to lower your premium, make sure your savings reflected that change.
The financial order of operations isn't about being restrictive; it's about being efficient. It’s about knowing that every dollar you earn has a specific job to do, and when you put them in the right order, they work a lot harder for you than you ever worked for them. Stop guessing and start following the map. Once you’ve handled the basics, the "wealth" part starts to take care of itself.