Let’s move on to Austin H’s question. He asks, “What proportions of 25% savings should be in retirement accounts versus cash and taxable brokerages?” He’s maxing out his 401k and Roth, and for him, that’s already 30% of savings. So, what do you think? Should he be concerned about allocating in different places with that 25 to 30%?
What would you say? It’s almost like there’s a system that addresses all this, called the Financial Order of Operations. You too can have your free copy if you go to moneyguy.com/resources and download your nine-step process. But if you want a deep dive, go to learn.moneyguy.com; we have a deep dive course.
Now, here is what he’s describing. The whole purpose—people say, “What in the world do you mean by hyper accumulation with step seven of the financial order operations?” Austin is exactly at this point because you start by having so much in the beginning in cash reserves, which makes sense for emergencies and flexibility in life. Then, the next phase of wealth building is taking advantage of government-given opportunities with Roth assets, HSAs, and retirement accounts with employers – all tax-driven.
When you get to step seven of the Financial Order of Operations, you realize there’s a why for all this building. With different buckets like tax-deferred (employer match), tax-free (Roth assets), and after-tax (brokerage accounts), you start thinking about how they work. You start considering when and how you’ll spend this money for retirement or financial independence.
We provide all the tools for you to take an inventory and plan for the future. If you’re at 30% in step six, like Austin, and wondering about the right proportions, begin with the end in mind. Think about your future life and where you’ll need resources. It’s a unique decision based on your circumstances and goals.
You can track your tax buckets using our net worth tool on learn.money.com. Assess if you need to move money between buckets as you progress. It’s not a prescribed percentage for each bucket; it’s a custom decision based on your unique circumstances.
You can graduate to steps seven and eight without maxing out federal government limits into employer plans if you’re doing 25%. Remember, everyone’s financial plan is unique, like snowflakes and fingerprints. In the higher levels of the financial order of operations, consider taking advantage of our courses to enhance your plan.
If you reach a point where you feel the need for more guidance, feel free to take the relationship to the next level. We love working with clients all across the country in their financial journey.
