The Financial Order of Operations
Let's talk about something super important but often overlooked when it comes to getting your financial house in order: the Financial Order of Operations.
So, what exactly is the Financial Order of Operations? Think of it as your roadmap to financial success, designed to help you navigate your way through the world of money like the money queen that you are. It's all about prioritizing your financial goals and making sure you're building a solid foundation for your future, while still having plenty of room for date nights and trips to Lululemon.
Create a Budget
Your Financial Foundation
Budgets get a bad rap. People oftentimes associate budgeting with restriction when it couldn’t be further from the truth – they are empowering.
Since I’m your personal finance bestie, many people at the beginning of their budgeting journey will say to me, “Amanda, you’ll be so proud of me – I didn’t spend ANY money this week!” And if you’re doing a no-spend month or something, then great for you! But not ever spending money is NOT the goal when it comes to building out a plan for your money. The goal instead should be to spend it intentionally.
Think about it: have you ever gotten to the end of the month and been like, “Where the fudgesicles did all my money go?!” That is the worst feeling. You spend 40+ hours every single week working for money and then feel like you have nothing to show for it. Well, have you ever actually sat down to look at what all is coming in and what’s going out?
The fact of the matter is that most people spend 40+ hours working for money and then spend zero hours looking at where exactly it’s going. You are not going to be able to change your financial situation if you don’t spend a little time understanding how you’re spending money today.
What if I told you that Apple, Google, and Tesla didn’t have a budget to run their companies? They just trusted things were going fine. You’d be like, “You are out of your mind.” Because that’s obviously not true! While you don’t have a board to report back to, you do owe it to yourself to spend a teensy bit of time understanding what you have to work with so you can use your hard-earned money as a tool to fuel your dreams!
Build Your Emergency Fund
Your Financial Safety Net
An Emergency Fund is hands down the first thing you want to tackle after laying the foundation with the budget. Why, Amanda?! I’d rather move on to the fun stuff first!
Picture this: You're out walking your perfect, very handsome pup on a sunny day with a venti cold brew in hand when, suddenly, disaster strikes. Your beloved fur baby decides to eat a tennis ball and needs an unexpected trip to the vet…on a Saturday (insert scary music here because IYKYK). Vet visits are never cheap, but they come at an extra special premium on weekends. That's where your Emergency Fund comes in, like a trusty sidekick ready to save the day. Instead of being worried about both his surgery and a steep bill, you get to focus on comforting him only! You have no stress when it comes to paying for whatever he needs because you have money saved just in case something like this happens.
Don’t have a dog? You get the idea! An Emergency Fund is our financial safety net to cover unexpected incidents because we should always expect the unexpected. You usually want to aim to stash away three to six months' worth of living expenses in a high-yield savings account, so you'll be ready to handle whatever curveballs life throws your way.
Pay Off High-Interest Debt
Your Financial Priority
After our Emergency Fund is built up, it’s time to pay off those high-interest debts. I know debt can feel like this horrible dark cloud hanging over your head, but fear not, because you have the power to banish it for good!
Start by tackling your high-interest debt, which is anything 8% ish and higher. This usually includes credit card balances and personal loans, as those are costing you tons of money in interest. Now I know money can come with a lot of shame, especially debt, but channel your inner Lara Croft and strategically attack those balances one by one until they're gone for good.
My favorite strategy is combining the avalanche and snowball methods to pay them down as fast as possible. Trust me, the freedom that comes with being debt-free is worth every uncomfortable feeling now!
Invest in Your Future
Your Key to Financial Freedom
Now that you have your Emergency Fund in place and those pesky debts out of the way, it's time to start building wealth! Investing can sound and feel intimidating, but it's the most fun part of your money journey and actually easier than you think. Know that the reason it feels intimidating is because you probably never learned how it works! It’s not hard stuff, it’s just new to you. And how are you expected to feel comfortable with something you never learned?
We almost have a sub-method of our financial order of operations, and that’s the investing order of operations, which goes like this:
Step 1: Get your employer match in your 401(k)/403(b)/457
Step 2: Max out your HSA, if eligible
Step 3: Max out the Roth IRA, doing a backdoor Roth IRA if over the income limit
Step 4: Go back to the 401(k)/403(b)/457 and finish making that out if you’re able
Step 5: Always leave a little something for the taxable brokerage account
Bonus: Do a Mega Backdoor Roth, if eligible
I have an investing guide for beginners that breaks all these down in much more detail if you want a little more guidance. But make sure you don’t put this off! Future you will thank you!
Sinking Funds
Save for Multiple Goals
Whether you're dreaming of starting your own business, jetting off on a trip with your BFFs to Sonoma, or buying a house to give your dog the backyard he deserves, it's important to set aside money specifically for your upcoming goals. We call these Sinking Funds! We want to keep this money in a high-yield savings account, but separate from our Emergency Fund…because we don’t want to inadvertently go dipping into it for something like a girl’s trip to Mexico.
To take my savings to the next level, I like to create separate savings accounts for each of my goals – then name each of them after the savings goal – so that I know exactly how much money I have for that thing. I personally really like Ally because of their bucket feature. It’s a nice visual of how you’re tracking toward each goal.
I think this is a super powerful way to make sure that you’re spending your money intentionally.
Let’s say that Beyoncé decides to host a surprise, last-minute concert in Chicago, and seeing her would be your dream come true. If you didn’t just have extra cash lying around for this, you get to go check out your handy dandy Sinking Fund buckets and determine if there is something else you’d rather delay so you get to see Bey. You know you don’t want to pull from your Emergency Fund or bills, so maybe you decide to push off the Dyson hair dryer you’ve been wanting. You know that won’t be going anywhere, but the Queen herself likely won’t ever host another show like this. Now you’re not pulling from anything super important, not going into debt, and still get to go to the concert!
See how organizing your money like this can be so empowering?! Just remember, though, that these are intended for short and medium-term goals. Anything you know you want in less than 5 years or at a very specific point in time can be put in your high-yield savings account. Anything that’s 5+ years out or that’s just a “maybe one-day” thing can be invested!
Generational Wealth
Invest for Your Kids
Last but certainly not least, let’s not forget to take care of the kids in your life and build generational wealth! Now why am I putting this last? No, it’s not because I like dogs more than children 👀, it’s because you need to take care of yourself first. It’s the financial equivalent of the airplane stewardess telling you to put your oxygen mask on before helping others.
Your options for helping your kids build wealth vary, but here are the most popular accounts you can use to invest for them:
Custodial Roth IRA
529 Plan
UGMA / UTMA
Brokerage Account in your name that you gift later
Even if you can’t invest a lot of money right now, remember that our money’s BFF is compound interest. A little goes a long way when they are young and time is on their side!
I want to add this: I know you deeply love your children and want to give them the best chance at crushing life, but make sure you’re not neglecting your own dreams and retirement. Kids are sponges and are going to soak up how you save, spend, and talk about money. In fact, our money habits are established by age seven! SEVEN!
So, if you’re reading this and thinking, “Amanda, why are you acting like money is unlimited? I can barely take care of my own friggin future!” Then know that is okay!
Because guess what…want to know a free way to create generational wealth? You can teach your kids about money. Teaching healthy money habits alone will pay dividends for years to come!
Wrapping Up
So there you have it, the Financial Order of Operations. I know that learning all this money stuff can initially feel overwhelming, but remember that it is a journey. You didn’t learn this growing up, and we won’t become a money master overnight. But I will tell you this: becoming financially literate changed my life. If you can dedicate yourself to learning one thing a day…that’s 365 new money things you’ll know this time next year! Start today and watch your whole life change in incredible ways!
