The Money Guy’s FOO helps ensure you are taking advantage of all resources. They focus on building a strong financial foundation, but they also help ensure you get the most out of your dollars by investing earlier.
This is a great plan to follow, especially for all the financial mutants* out there, to help you achieve financial success.
*A Financial Mutant is how The Money Guys describe individuals who think about money differently than the average population. These are individuals who have achieved exceptional financial success through a combination of smart financial decisions, hard work, and creativity. According to the Money Guy Show, financial mutants are people who have been able to achieve financial independence by building significant wealth through entrepreneurship or investing, or finding innovative ways to earn and save money. The term "financial mutant" is meant to highlight the fact that these individuals are rare and exceptional in their financial abilities and mindset.
Financial Order of Operations (The FOO)
1. Deductibles covered – Have enough saved to cover co-pays and deductibles (e.g., Health, Auto, & Home). This can help you from being thrown backward on your financial journey should something unexpected happen. Make sure to have at least enough cash reserves to cover the one deductible that costs the most.
2. Employer Match (Free money) – DO NOT miss out on the free money. Make sure you are maxing out any employer match you can receive in your retirement accounts.
3. High-Interest Debt-Credit cards (Expensive money) – DO NOT carry any credit card balances as that will cost you a lot of your future. These not only cost you high-interest fees, but they will deny you the ability to gain money from investing these dollars. Credit cards can be an extremely dangerous tool if not used properly.
*Compound interest can either be your best friend or your worst enemy. For credit cards, it is your worst enemy.
4. Emergency reserve (Important money) – Have 3-6 months saved, or 18-36 months if nearing retirement.
This depends on how quickly you think you could find a new job and replace your income should something happen.
3 months – if you are in a high-demand field and could find a new job quickly.
6 months – if you feel it could take you longer to find a new job that will replace your income.
18-36 months – If you are nearing retirement. This can help you transition into retirement as it could take a little bit to start withdrawing any of your retirement funds, and it could help cover you if the market is down when you retire inhibiting you from being able to withdraw your retirement at a significate loss.
They suggest you also include any other things you might need within 3-5 years, (houses, cars, weddings, etc.) in a cash savings account.
*Note, they say this money should be in a savings account and not in any investments as those could either be down in value when you need it, or it could take you longer to get to that money due to banking/government regulations. This is not the money you will use to build your wealth as you want it to be there when an emergency happens.
If you are wanting to increase your emergency fund, the Money Guy suggests first focusing on 3-6 months (or 18-36 months if nearing retirement) plus anything else you will need within the next 5 years, then finish the rest of the order of operations before coming back to increase your emergency fund. This is to ensure you are not missing out on the benefits of investing earlier in life.
5. Max Roth and HSA contributions – These are TAX-FREE retirement accounts.
Roth contributions are after-tax dollars that grow tax-free and can be withdrawn tax-free during retirement, after age 59 ½.
Roth’s max contributions = $6,000 per year (per 2020)
HSAs are for medical expenses, and they act like pre-tax 401k’s on the front end and Roth IRAs on the back end.
HSA’s have a triple tax advantage meaning:
(1) the contributions are pre-tax dollars, or the contributions can be deducted
(2) it grows tax-free, and
(3) the money can be withdrawn for medical expenses at any time tax-free.
HSA’s max contributions = $7,100 per year (per 2020)
Money from HSA’s can also be withdrawn without penalties for non-medical purposes after age 65, however, it will be subjected to income taxes.
Not everyone qualifies for HSAs, but if you do, these should be taken advantage of.
They suggest that if married, max out Roth & HSA contributions for both individuals to get all the tax benefits you can before moving on to any other steps.
6. Max out other retirement options – Now go back and max out any other retirement options, like your employer retirement account. If your employer offers a 401k Roth, take advantage of that in this step as well.
7. Hyperaccumulation – Look into any other tax advantage options along with other investment options. This is where investing in real estate comes in.
8. Prepaid future expenses – Consider various future expenses, such as kids’ college, weddings, and other financial goals. The Money Guy says new car purchases (brand new cars) should fall into this step as well. Where you choose to save depends on your purpose and timeline. For college savings, a 529 plan is a solid choice. If you need funds within the next 5 years, opt for cash or a high-yield savings account. For longer-term goals (beyond 5 years), a brokerage account may be more suitable.
9. Low-Interest Debt (Debt prepayment) – pay off your house and any other low-interest debt you might have.
The Money Guy website offers a lot of free and very informative resources to help you manage your money.
Some of my favorites are the “Are You on Track to Be a Millionaire?” chart and their “Wealth Multiplier” charts.
The information above is my interpretation of what I‘ve learned from The Money Guy Show and their website. If you want to learn more, I suggest looking into their Financial Order of Operations paid course where you can learn more about their financial steps.
Check out the links below to learn more about other areas of finance.
Budgeting
Saving
Debt
Groceries and Gas
Cars
Insurances
College
Housing/Real Estate
Retirement and Investments
Lessons of 2020
Recipes
Here you can find tips and tricks in each category to help you achieve success with the FOO.
Financial Checklist for Each Decade
(This was put together by looking at information from Dave Ramsey, The Money Guy Show, Minority Mindset, and others. Be sure to do what is right for you and your situation.)
In Your 20s Focus On:
Ensuring you have a cash emergency fund.
Dave Ramsey says to have $1,000 for this
Minority Mindset says to have $2,000 for this
Others suggest having 1 month’s worth of expenses for this.
Making a Plan for your money.
Take time to read the plans the financial gurus used to help them succeed. Even if you're not following one exclusively, this will help you get an idea of where you should focus your money.
Here are a few to get you started:
I want to highlight the F.I.R.E. Community. I suggest looking into the F.I.R.E. Community types, strategies, and goals, because if F.I.R.E. is something you are interested in, then it’s important to start early. Finding F.I.R.E. in your 40s is almost too late.
Creating and following a Budget.
It’s been proven when you tell your money where to go, you do better financially.
Getting out of and staying away from Debt.
Dave Ramsey says it’s never okay to have debt, but if you are interested in using “good debt” to make money as other financial professionals speak about, then this would come in the building wealth/hyperaccumulation phase.
Automating your Savings and Investments to build your foundation.
Have a fully funded emergency fund. Life changes constantly, so be sure to review this often to ensure you are still adequately funded.
Investing goal should be to reach investing 25% of your gross income consistently by the time you reach 30.
Trying to live cheaply.
Know the difference between needs and wants.
Keep your housing costs (your mortgage/rent along with your insurance and taxes and some even include utilities in this) to no more than 25% of your gross income.
Be sure to check out this Groceries and Gas page for tips to keep your cost of living down.
Buying vehicles correctly (if you need a vehicle) to not derail your future.
Check out this Cars page to learn how much of a vehicle you can afford and tips when purchasing a vehicle.
Getting auto, health, and rental/home Insurance per your need.
Focusing on maintaining a healthy lifestyle to build a healthy foundation for your body.
Your health is your largest asset.
Learning how money works.
Most people don’t do well with money because they don’t understand the game. While younger, take time to learn how money and economics work, so you will know how to play the game. The earlier you learn, the better you will do. Here is a list of Recommended Books to help you get started.
In Your 30s Focus On:
This is the messy middle. Your income may go up but so do your commitments.
Ensuring you have a cash emergency fund.
Dave Ramsey says to have $1,000 for this
Minority Mindset says to have $2,000 for this
Others suggest having 1 month’s worth of expenses for this.
Making a Plan or review your plan for your money to ensure it still fits your needs.
It’s been proven when you tell your money where to go, you do better financially.
Take time to read the plans some financial gurus used to help them succeed.
Here are a few to get you started:
I want to highlight the F.I.R.E. Community. I suggest looking into the F.I.R.E. Community types, strategies, and goals, because if F.I.R.E. is something you are interested in, then it’s important to start early. Finding F.I.R.E. in your 40s is almost too late.
Creating and following a Budget.
It’s been proven when you tell your money where to go, you do better financially.
Getting out and staying away from Debt (especially bad debt).
Dave Ramsey says it’s never okay to have debt, but if you are interested in using “good debt” to make money as other financial professionals speak about, then this would come in the hyperaccumulation phase.
Automating your Savings and Investments to build your foundation.
Have a fully funded emergency fund. Life changes constantly, so be sure to review this often to ensure you are still adequately funded.
Be sure you are investing 25% of your gross income consistently.
Trying to live cheaply.
Know the difference between needs and wants.
Keep your housing costs (your mortgage/rent along with your insurance and taxes and some even include utilities in this) to no more than 25% of your gross income.
Be sure to check out this Groceries and Gas page for tips to keep your cost of living down.
Buying vehicles correctly (if you need a vehicle) to not derail your future.
Check out this Cars page to learn how much of a vehicle you can afford and tips when purchasing a vehicle.
Reviewing Insurance needs. Ensure you are adequately insured with auto, health, and rental/home insurance, and start looking into life insurance if you have others that depend on your income.
Focusing on maintaining a healthy lifestyle to continue to build a healthy foundation for your body.
Remember, your health is your largest asset!
Continuing to learn how money works so you can stay on top of what you should do with your money, and so you can start teaching others to help them understand as well. ”Reach one, teach one”. Here is a list of Recommended Books to help you get started.
In Your 40s Focus On:
It’s not too late, but it’s time to buckle down the hatches if you haven’t been saving for retirement yet.
Continuing to stay away from Debt (especially bad debt), trying to live cheaply, and ensuring you are buying cars correctly.
For a refresher check out this Cars page for information and tips for buying cars, and here is a video about The Money Guy 20-3-8 Rule.
Ensure your monthly car payments are not more than you are putting into your investments.
Creating and following a Budget, especially if you haven’t been yet.
A budget can help you see where your blindspots are and help you stay away from lifestyle creep.
A budget will also help ensure your dollars get to their designated destination that you have decided will benefit you the most in your budget.
Reviewing your fully funded emergency fund to ensure it is still adequate for this stage of life.
Be sure to read The Money Guy’s thoughts on emergency funds above, and check out this Saving page for other information and tips on emergency funds and saving.
Reviewing your Insurance policies to ensure you are still adequately insured for this stage of life.
Start finding your retirement number. (The Money Guy offers a Know Your Number course if you need help with this.)
Know Your Why! Why are you planning for retirement, and what do you want it to look like? The stronger the why, the more people tend to stay on track with the goal.
Look into where you are investing and saving your money. Are you saving 25% of your gross income, and are they diversified into the 3-bucket strategy? This may be a good time to start looking for a Financial Professional.
They say the goal is to have enough saved by retirement to replace 80% of your pre-retirement income.
Doing a Net Worth Statement at least annually to ensure you are staying on track.
Focusing on a healthy body to continue to build a healthy foundation for your body.
Remember, your health is your largest asset!
Continuing to learn how money works so you can stay on top of what you should do with your money, and so you can start teaching others to help them understand as well.
Here is a list of Recommended Books to help you get started.
In Your 50s Focus On:
If you are behind, it may be time to look at increasing your income, spending less, or changing your assumptions of retirement. Maybe you need to push back the age you wish to retire, or you might want to consider a hybrid approach to retirement, meaning you will work part-time for a few years before you actually fully retire.
Return to Make A Plan
