Where to Put Your Money: The 11-Step Financial Pyramid
"The more you learn, the more you earn."
– Warren Buffett
Though MindBodyDad’s main focus is on physical health, mental health, and parenting, financial health deeply influences all of these areas. How we manage our money can shape everything—from where we live and our daily routines to our stress levels and our children’s future success.
But personal finance is just that—personal. There's no universal blueprint. Financial strategies shift depending on your age, family structure, and upbringing. This financial pyramid provides a flexible framework, designed to adapt to your unique circumstances. As personal finance author Morgan Housel writes,
"How you invest might cause me to lose sleep, and how I invest might prevent you from looking at yourself in the mirror tomorrow. Isn’t that OK? Isn’t it far better to just accept that we’re different rather than arguing over which one of us is right or wrong?"
In other words, it’s not about whose strategy is "right" but what works for you.
While the steps in the financial pyramid don’t have to be done sequentially, especially as you progress, they serve as a general roadmap. You may want to tackle more than one at a time, particularly once you move beyond the initial foundational steps.
As a disclaimer, I am not a financial planner, but these steps are general financial strategies based on common recommendations from personal finance experts. Consider consulting a certified financial advisor for personalized advice.
The Financial Pyramid
Step 1: Build an Emergency Fund
An emergency fund of one month of expenses acts as a financial safety net to cover unexpected costs, such as medical bills, car repairs, or sudden job loss. There are a lot of problems you can fix with $2,000 to $10,000. Economists have looked at this common rule of thumb and put a specific number to it:
…the threshold point is $2,467 with a 95% confidence interval of $1,814–$3,011 (in 2019 dollars) or roughly 1 month of income for the average low-income household….
So, start with saving $2467.
Considerations:
Keep the fund in a high-yield savings account for easy access and to earn some interest.
Step 2: Maximize Your Employer Match
If your employer offers a retirement match, take full advantage—it's essentially free money.
Considerations:
Make sure your contributions are actively invested, not just sitting idle in the account.
Step 3: Pay Off High-Interest Debt
Tackling high-interest debt should be a priority, as it can quickly erode any financial progress. Credit cards and personal loans often carry high interest rates so pay off anything that has a 5% interest rate or higher.
Considerations:
There are two primary strategies for tackling high-interest debt: the Avalanche Method and the Snowball Method.
The Avalanche Method focuses on paying off debts with the highest interest rates first, which is a logical approach that minimizes the total interest paid over time.
The Snowball Method prioritizes the smallest debts, offering quick wins that can provide a psychological boost and increase motivation. Do what works for you as long as it gets paid.
Step 4: Fully Fund Your Emergency Savings
Once you've started investing, continue to build up your emergency fund to handle larger or longer-term financial shocks, especially if your expenses have increased. About 3 months is the minimum if you have job security and live in a dual-income home. Increase this toward the 6-12 month range if you are self-employed, the breadwinner, or have a volatile job.
Considerations:
Keep it liquid—this money needs to be accessible--and in a high-yield savings account.
Step 5: Get Disability Insurance
Disability insurance protects your income if you become unable to work due to illness or injury. This may be less of an issue if you're single and can move back in with mom and dad and significantly more important if you have a mortgage, dependents, and other financial obligations that rely on your steady income. Disability insurance is typically 1% to 3% of your gross income.
Considerations:
Check what type of insurance your employer offers.
Supplement with private disability insurance if needed.
Step 6: Invest in a Brokerage Account
Open a taxable brokerage account to grow your wealth outside of retirement savings. It doesn't have to be a large amount but starting early is important to capitalize on the 8th wonder of the world, compound interest. Investing $100/month starting at age 25 and ending at 65, for example, is $48,000 if you don’t invest it and about $351,428 if you do, assuming the 8% return (the stock market average). This option may be more of a priority if you have student loans and expect the tax bomb to drop in the coming years.
Considerations:
Begin with low-cost index funds or ETFs, which offer broad market exposure at a lower cost.
Contribute consistently with the Dollar-Cost Averaging (DCA) strategy. Set-up a regular withdrawal of a fixed amount at regular intervals to reduce the risk of market volatility by spreading out purchases over time.
Some popular options include Vanguard’s Total Stock Market Index Fund, Fidelity’s Zero Fee Index Funds, and Schwab’s S&P 500 Index Fund.
Step 7: Max Out Your Health Savings Account (HSA) or Flexible Spending Account (FSA)
If you have a high-deductible health plan, contributing to an HSA which has the huge benefit of offering a triple tax benefit. That means that your contributions are tax-deductible, the funds grow tax-free, and withdrawals for qualified medical expenses are tax-free. FSAs are a useful alternative for medical expenses if an HSA isn’t available.
Considerations:
Contributions to HSAs and FSAs are pre-tax, meaning they reduce your taxable income.
The main difference between an FSA and an HSA is that FSAs are "use-it-or-lose-it" accounts, meaning you must spend the funds by the end of the year, whereas HSA funds roll over indefinitely, making them a more flexible long-term option for medical expenses.
Step 8: Contribute the Maximum to Your 401(k), 403(b), or 457
Maximizing contributions to these tax-advantaged retirement accounts is a powerful step toward long-term financial security. A 457 plan, often available to government employees or nonprofit workers, is especially valuable because it has no early withdrawal penalty if you leave your job before the typical retirement age.
Considerations:
The maximum contribution limit for these accounts changes annually, so stay updated on the current year’s limits.
Make sure that this money is not just sitting in an account but that it is actually invested.
Step 9: Get Life Insurance
This one is especially important if you have dependents since it makes sure that they will be financially taken care of in the event of your death.
Life insurance through work is usually 1-3x your salary, which usually isn't enough to pay off a mortgage. It's often worthwhile to get private life insurance and aim for around 10x your salary. Life insurance is dependent on two things: your health and your age. Sign up for this earlier in your life when you're younger and likely healthier which means more affordable premiums
Considerations:
Term life insurance, opposed to whole life insurance, is the best approach for the vast majority of people because it provides affordable coverage for a specific period, typically 10 to 30 years, without the complexities and higher costs associated with permanent policies.
Calculate coverage based on future expenses such as your mortgage, education costs, and living expenses for your dependents. You can even factor in their education cost if you want to decrease that potential burden.
Step 10: Pay Off Low-Interest Debt
Once you’ve addressed high-interest debt, shift your focus to loans with lower interest rates, typically under 5%. These may include federal student loans, auto loans, or mortgages.
Considerations:
Start with the highest interest rates first, the debt avalanche approach.
Step 11: Plan for Long-Term Goals
Whether it’s buying a home, saving for a child’s education (529 plan), the home renovation, starting your own business, or that trip around the world, long-term goals require intentional savings and investment strategies. The rule of thumb is that if the goal is within 5 years, keep the money liquid; if it’s over 5 years, invest it. Early retirement would fit nicely here since the classic retirement savings avenues probably won’t let you retire before 65 so adding to a brokerage account is a great way to do it.
Considerations:
Set specific, measurable financial goals and determine how much you need to save each year to achieve them.
Does this look like your financial pyramid? What would you adjust?
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