Optimal Order for Investing Your Money
Our good friend Tae Kim from the Financial Tortoise (he’s been on the podcast in Episodes 186 and 302) put out a YouTube video last month that went viral with over 200k+ views called, “Optimal Order for Investing Your Money.”
I highly recommend watching the 10-minute video and while I could probably quibble around the margins with a few of the picks (maybe not Roth IRA?), I thought this was an excellent primer for how to conceptualize the prioritization of your savings.
Here’s Tae’s list:
1) Emergency Fund
2) 401(k) match (essentially a 100% instant return)
3) Pay high interest (over 5%) debt
4) Max Roth IRA (for tax certainty)
5) HSA (Health Savings Account)
6) 529 plan (if you have kids)
7) Max 401(k)
8) Taxable account (regular savings)
9) Pay low interest debt (under 5%)
10) Pay off mortgage (purely optional)
End of the Year: Take Action
It’s easy to just write off these last few weeks of the year and think that positive changes should wait until the new year or be accompanied by some silly ‘resolution.’
My challenge to you today is simple:
Take one action to make your life better between now and the end of the
year.
You still have 5% of the year left, so don’t just write it off.
Some inspiration:
- Learn something new (here’s a list of Dr. Andrew Huberman’s incredibly detailed masterclass-level newsletters on topics from sleep to fitness to cold/heat exposure)
- Make a positive financial change like: Increase your retirement savings by 1%, finally put your credit cards or utility bills on autopay, make a call to get a new quote on car/home/life insurance, etc.
- Take a short walk after dinner each night, or get some early sunlight exposure in the morning
- Invite a friend you haven’t seen in a while out for coffee
ChooseFI Community Taking Action This Week
- Krissy said, “My most recent 1%… paying extra attention to our health benefits and discovering that my spouse’s company reimburses for back up childcare / elder care days every year. It was such an obscure, unexpected benefit that added up to an extra $1250 in our pockets and something I definitely would have missed this year if I hadn’t done the extra digging.”
- Ben said, “My 1% better was shopping my home and auto insurance policies. Been meaning to research home options since I got my renewal a few months ago but my auto going from $1100 to $1700 finally got me off my butt!!! I was not able to find cheaper home insurance (at least from a reputable company) but was able to find great auto insurance for only $900.”
- Ankush said, “Our 1% better for this month was to reduce our saving rate from 68% to 62% by moving into a bigger apartment (gave us another room). Earlier we used to live in a small apartment which had played a critical role in our saving rate but decided to move into a bigger apartment which doubled our rent but gave us the necessary space with work from home here to stay. This decision was hard for us as it does hurt our saving rate and FI goals and might be counter-intuitive for FI. But we realized that there is no point wishing our life away. The best part of all of this was that it was a conscious decision which I learned from ChooseFI. I am grateful to have found you and wish you the best.”
- Richard said, “1% better for the last 5 weeks, and I guess for the year. I started therapy. Heard you today with Rich Jones on Episode 413 talking about therapy and he said something to the effect of “I wish I would have tried more therapists until I found the right one, instead of giving up”. I got lucky on the first try, it clicked and man it helps. Hope this helps someone have the courage to make that first phone call, it’s worth it whether you have what seems like “first world problems” or seriously deeply rooted challenges. Give it a try.”
- Kate said, “I redeemed points and booked a night at the hotel for my husband when he travels for work! Although it was only ~$120/night hotel, I felt accomplished that we spent ZERO in our hard-earned cash!”
- Rachel said, “1% better – car & home insurance now billed monthly, on my credit card, for no additional cost. As a result of setting up the online account, both the bills are now monthly and billed to credit cards – which means, Travel Rewards for Car & Home Insurance. And they text me reminders just before the billing.”
- Hollie said, “My husband and I traveled across the US to see our new grandson using points and our Companion Pass. Our flights were such that both leaving and coming home were at terrible times to ask my family to meet us so we decided to just park in long term parking. I happened across a parking company called Avail Car Sharing. They will store your car while you are traveling for free if you will allow them to rent it out during that time. If it is rented then they pay you $20 per day. They wash and detail it too. We gave it a try and not only did it eliminate our $80 parking fee but we made $60 too. To participate your car must be a 2013 or newer and not have any check-engine or repair lights. We have a mid-size SUV and they said that they rent them out most often in our area.”
