Money Guy Order of Operations Explained

Creating a solid financial future can feel overwhelming. With so much advice available, it's hard to know where to start. Should you pay off debt first? Build an emergency fund? Start investing? Having a clear roadmap is essential for making progress. One popular framework that provides this clarity is the Financial Order of Operations, designed to guide your every dollar toward its most effective use.

What is the Financial Order of Operations?

The money guy order of operations is a nine-step financial plan developed by Brian Preston and Bo Hanson of 'The Money Guy Show.' It’s designed to provide a logical sequence for your financial decisions, ensuring you build a strong foundation before moving on to more advanced wealth-building strategies. The goal is to optimize your savings, investments, and debt repayment to create lasting financial stability and independence. By following these steps in order, you can avoid common financial pitfalls and make sure your money is working as hard as possible for you.

The 9 Key Steps to Financial Success

This framework breaks down complex financial decisions into a manageable, step-by-step process. Each step builds upon the last, creating a comprehensive strategy for your money. Let's explore each of the nine steps in detail.

Step 1: Cover Your Deductibles

The first step is to have enough liquid savings to cover the highest deductibles on your essential insurance policies, such as health, auto, and home. This ensures that a medical emergency or a car accident doesn't immediately derail your finances. This isn't your full emergency fund, but rather a first-line-of-defense savings buffer.

Step 2: Get Your Employer Match

If your employer offers a match for retirement contributions, like a 401(k) or 403(b), your next priority is to contribute enough to get the full match. This is essentially a 100% return on your investment and is one of the easiest ways to accelerate your retirement savings. Not taking advantage of this is like leaving free money on the table.

Step 3: Eliminate High-Interest Debt

High-interest debt, such as credit card balances or personal loans with double-digit interest rates, can be a major obstacle to building wealth. The interest payments drain your income and work against your financial goals. Focus on aggressively paying down any debt with an interest rate above 6-8% before moving on.

Step 4: Build a Full Emergency Fund

With high-interest debt gone, it's time to build a robust emergency fund. The standard recommendation is to save three to six months' worth of living expenses. This fund should be kept in a liquid, easily accessible account, like a high-yield savings account. An adequate emergency fund provides a safety net for major life events like a job loss or unexpected medical bills, as detailed by the Consumer Financial Protection Bureau.

Step 5: Max Out Roth IRA and HSA Accounts

Once your emergency fund is in place, you can turn your attention back to investing. The next step is to max out tax-advantaged retirement accounts. This includes a Roth IRA, which offers tax-free growth and withdrawals in retirement, and a Health Savings Account (HSA), which provides a triple tax advantage (tax-deductible contributions, tax-free growth, and tax-free withdrawals for medical expenses).

Step 6: Hyper-Accumulation Phase

This is where wealth-building truly accelerates. The goal is to save and invest 20-25% of your gross annual income. This includes your employer match and contributions to Roth IRAs and HSAs. You can achieve this by increasing contributions to your employer-sponsored retirement plan or opening a taxable brokerage account.

Step 7: Plan for Future Expenses

Think about major upcoming purchases, like a down payment on a house, a new car, or college tuition for your children. Start setting aside money for these goals in separate savings or investment accounts. This proactive approach prevents you from having to dip into your long-term investments or take on new debt when these expenses arise.

Step 8: Pay Off Low-Interest Debt

Now you can focus on low-interest debt, such as mortgages or student loans with rates below 5%. While not as urgent as high-interest debt, paying these off ahead of schedule can free up significant cash flow and provide peace of mind. You'll need to weigh the guaranteed return of paying off debt against the potential returns from investing.

Step 9: Abundant Living and Pre-Funding Goals

The final step is to enjoy the fruits of your labor. With a strong financial foundation, you can pursue 'abundant living'—whether that means retiring early, traveling more, or giving generously. You have the financial freedom to make choices based on your values, not just your immediate needs.

Sticking to the Plan When Life Happens

Following a structured plan is powerful, but life is unpredictable. Small, unexpected expenses can pop up and threaten to disrupt your progress. Whether it's a minor car repair or a surprise bill, managing these short-term cash flow gaps is crucial. Using a tool designed for these situations can help you stay on track without resorting to high-interest credit cards. For instance, a fee-free cash advance app like Gerald can provide a small boost to cover an expense until your next paycheck, ensuring you don't have to pause your debt repayment or investment contributions. This allows you to handle minor financial hurdles while keeping your long-term goals intact.