How Do I Prioritize Where to Save and Invest?

September 9, 2023

There are so many different things you should be saving for: your 401(k), Roth IRA, rainy day fund, a house, and more. How do you balance saving when you have limited resources and where should you save first?


We’re going to move on to Jordan’s question. Jordan says, “Should my choice in saving into Roth, HSA, 401k, for a house down payment, or for my rainy day fund depend on my why and my period in life? Saving for all of it at the same time can feel difficult to navigate. So I know some of these, you may have a handy-dandy handout that helps with, and some of it, I think, is good for you to speak to the mentality surrounding it. Where would someone find that handy-dandy handout?”

Jordan must be brand new because this particle is dancing in front of him, just going, “Jordan, Jordan.” Every dollar that comes into your grasp, I have a plan for you. I mean, all you have to do is seriously look at the financial order of operations, and if you’ve built up a large enough and you’re really trying to accelerate this, go to learn.moneyguy.com for the actual course. We’ll find a place, a purposeful place, for every dollar that you’ve built up. So, tell me again, he said, “I’m trying to stop between Roth, HSA, and 401k, and then the rainy day fund are kind of all covered in the food.” Like, you’re gonna say which ones to do first, which ones to prioritize. He also mentioned a house down payment, which I know is a little bit trickier, so maybe you can speak to that.

When it comes to the Roth and the other financial accounts, they just say they’re much… The financial order of operations is the answer, right? Because, in our view, you don’t move to the next step until you finish the previous step. So you don’t get your employer match unless you’ve got your deductibles covered. You don’t pay off the high-interest debt if you’re not getting the employer match. You don’t… And then you move on to the emergency fund, and then you move on to the tax-free stuff, then you move on to the tax-deferred stuff. So if you would just work through the financial order of operations, it will keep you true, it will keep you aligned so that you’re moving in the right direction.

Now, this idea around, “Okay, but what about the down payment? Like, where does that come in?” I get it; that’s hard, right? That’s a difficult thing because then you do have to come back to the “why.” Like, funding my emergency fund versus funding my Roth is not a “why” question; that is a “where are you in the cycle” question. Saving 25% or building for a down payment, or some mix of both, that’s a “why” question, and you have to answer the question, “Okay, what is the ultimate goal I have for these dollars? I want financial independence, and I want retirement, and I want to be able to move in that direction. But realistically, before I get there, I probably want to own a home and start a family and settle down and establish roots.” And it’s okay to prioritize this goal at one point, and then once that goal is satisfied, move to the other. But we are of the opinion that it doesn’t have to be an all-or-nothing. It doesn’t have to be completely, “I’m only going to do this one or that one.” I think you can approach it and target both, roughly.

I think you said something that’s very valuable there. When you’re getting to all the way through stuff four, which is the emergency reserve, stuff five, which is the HSA and the Roth… Starting that through an IRA, if you can, is that those are purposeful dollars. You have to know that. But when you get to, like, step six, those are where you can get into more of the “why,” and the saving for the house down payment. I think you can transition from “why” and add the thing that brings in even more focus: the “when.” If you know you want to buy a house in the next 24 months, you know you’re getting closed captioning not available to at the end of it. It said, “It’s hard, right? It’s hard to do it all at the same time.” Yeah, basically.

Well, and here’s the deal. It is hard. Yeah, it is. Like, building financial independence is hard. Saving money is hard. Following the financial order of operations, it’s all simple. It’s all very simple. But it’s not easy. It’s hard. And that’s why the “why” is what keeps you motivated. The reason that we’re able to do hard things is because the “why” on the other end is more important than the pain that we feel today. Deferring gratification isn’t fun. We’d all rather consume today and have the joy, but the joy of knowing that I’m doing the hard thing today so that I can have the better thing tomorrow is incredibly valuable.

But I think that we live in this world with TikTok and Instagram and social media where it makes it look like it’s not supposed to be hard. There are all these 25- and 30-year-olds bebopping around, driving fancy cars, living these fancy lifestyles. That’s not reality. That’s not what reality is. And so, if you’re in that stage and you’re finding that it’s hard to build wealth and it’s hard to save and it’s hard… you’re in the right place because it’s not an easy thing. I saw it just yesterday. Somebody posted, I think it was on Twitter, “If you make the hard decisions while you’re young, you’ll have an easy life. If you make easy decisions while you’re young, you’re gonna have a hard life.” So, I think if it feels like it’s hard, Jordan, that means you’re probably doing it right because you don’t see, you know, we always say, “Don’t skip leg day.” That’s because you’ve got to build that financial foundation and do the hard work that nobody else is willing to do while you’re young. You’re going to have the base; you’re going to have the success because you didn’t skip leg day. So, you’ll be congratulated, and you’ll be able to live in that prosperity from that discipline and making all three ingredients of wealth creation work for you. You’re going to be rewarded. Just hang in there. Want to know what to do with your next dollar? You need this free download: the Financial Order of Operations. It’s our nine tried-and-true steps that will help you secure your financial future.



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