Life pulls us in a million directions: careers, kids, houses, cars, taxes, vacation, income, weddings, retirement, groceries, side hustles, investments, aging parents, promotions, and job changes. Amidst it all, we try to make financially responsible decisions for ourselves and our families. We don’t want to compromise our lifestyle now, but we also can’t sacrifice building a plan for retirement.
As someone who identifies as a HENRY, or “high earner, not rich yet,” your plate is full. And as someone who falls in the Gen X, Millennial, or Gen Z generations, you know financial security is not guaranteed (tech bubble, housing crisis, Great Recession), adaptability is essential (COVID), and, for better or worse, content is king (social media/influencer boom). Large cash inflows and outflows often dictate the direction of life, and staying in control and feeling financially secure is the name of the game. Sometimes it would be nice if someone could just point us in the right direction and help us avoid landmines.
Well, here is your financial easy button.
One of the most overwhelming tasks that can prevent us from taking just one step forward is knowing what to do with our next dollar. I have put together an order of operations checklist related to which financial buckets I would fill up, and in what order. Consider this your adult PEMDAS (millennials, especially, will know):
- Establish your reference point.
- Look at your expenses over the last 3, 6, and 12 months. See any trends? Anything you expect or need to change? It is critical you are spending within your means.
- Connect your accounts to an aggregator that helps you manage a budget. YNAB, EveryDollar, and Honeydue are great options.
- Consider a “Quick Solution” fund that serves to buffer the most urgent of needs. Think, a quick flight/hotel/car for a funeral, a plumbing disaster, or a sudden medical emergency.
- Review any subscriptions you might not utilize anymore (e.g., streaming TV, online newspapers).
- Determine your safety net.
- Set up and stick to your emergency fund. Consider 3-6 months of expenses if you (and your partner/spouse) have stable jobs with consistent income. Consider 9-12 months’ worth if you are a business owner or experience inconsistency in your income.
- Pay down high-interest debt. I’m looking at you, anything over 7%. Whether you use the snowball or avalanche method, get ahead of this before it gets ahead of you.
- Automate this.
- Take advantage of free money.
- Look at your employer’s 401(k) match and contribute at least up to that match.
- If your employer offers an ESPP (Employee Stock Purchase Plan) as a component of their compensation/benefits package, understand how the stock discount could enhance your financial goals, and be mindful of vesting schedules and holding requirements.
- Don’t settle for 0.1% interest on your savings account. Research the many easy options where you can get at least 4%. Remember, a “rising rate environment” benefits the investor and aims to curtail the borrower.
- Consider participating in your HSA to leverage the triple-tax benefit, if used correctly.
- Hit retirement savings HARD.
- Look at maxing out your 401(k) or 403(b)/457 or setting auto-increases each year to reach that goal. Consider whether Roth (after tax) or pre-tax contributions are right for you based on your tax situation (and what you think it will be in the future).
- Consider contributions to a Traditional IRA or Roth IRA (or backdoor Roth strategy, if applicable).
- If you have self-employment income (e.g., consulting, side hustle like dog walking or TaskRabbit), you have additional opportunities for tax-saving retirement accounts, including a SEP-IRA or solo 401(k).
- Keep Investing.
- Consider taxable brokerage accounts, which provide opportunities for investment growth while providing tax efficiency and penalty-free accessibility.
- Look at 529 education plans, which allow for tax-deferred growth and tax-free withdrawals if used for qualified education expenses, student loan payoff, and Roth IRA funding.
- Consider rebalancing and setting your asset allocation in your various investment accounts to the appropriate mix based on your short- and long-term planning goals, time horizon, and liquidity needs.
As a math geek, I loved the structure and reliability of an order of operations. It leaves less room for error and more room for success. We use tools, create routines, and practice good habits every day to simplify and improve our lives. Today is the best day to start getting these things in order, one step at a time. Let this guide be your personal finance PEMDAS To-Do List. Print it out, grab your favorite highlighter or gel pen, and start crossing things out like you’re the NFL editing Alicia Keys’ first note during the Super Bowl Halftime Show.