Nine steps · where each dollar goes
Money fills the first bucket. When that one is full, the overflow runs to the next. You never skip a bucket, and you never pour into a lower one while a higher one still has room. Tap a step to open it.
This is the smallest step and the one that stops the most damage. The first bad day of the year, a fender bender, a trip to the ER, a tree through the roof, comes with a bill equal to your deductible before insurance pays a cent. Without this money in cash, that bill lands on a credit card, and you are suddenly working on step three before you ever got started.
It sits in plain savings, not invested, because you might need it next week. It is also the first slice of the emergency fund you will build in step four, so nothing here is wasted.
Done when cash in savings equals your highest deductibleThis sits above paying off credit cards on purpose. A card might charge twenty-some percent a year. A dollar-for-dollar match pays 100% instantly, and even a half match pays 50%. You will never beat that anywhere else, so it goes first.
Check the vesting schedule. Your own contributions are always yours, but the employer's share may become yours over a few years, and leaving early forfeits the unvested part. Know the date before you make plans around it.
A discounted employee stock purchase plan counts here too, as long as you sell the shares promptly and do not let company stock pile up.
Done when you are contributing enough to receive the full matchEvery dollar of expensive debt is a guaranteed loss at that rate. Paying off a 22% card is the same as earning 22%, risk free, tax free. No investment offers that, which is why this outranks everything below it.
What counts. Credit cards and personal loans, always. Car loans that fail 20/3/8: twenty percent down, paid off in three years or less, all car payments together under eight percent of gross income. A zero-percent promotional card counts too, because the rate is sleeping, not gone. Student loans count by your age: in your 20s anything over 6%, in your 30s over 5%, in your 40s over 4%, and at 50 or older all of them.
What does not. The mortgage. The house tends to appreciate, the interest may be deductible, and the rate is usually the lowest you will ever borrow at. It waits for step nine.
Which order. Highest rate first saves the most money. Smallest balance first gives you a win fastest. Pick the one you will actually finish.
Done when no expensive balance remainsThis is the money that keeps a job loss, a dead furnace, or a slow month from undoing steps two and three. Without it, the first real setback goes back on a card and you slide down the waterfall.
Size it on what it costs to keep the household running, mortgage or rent, utilities, food, insurance, minimum payments, gas, and nothing else. That is the number to multiply, not your salary.
A Roth IRA takes money you already paid tax on and never taxes it again, not the growth and not the withdrawals. It is also the most flexible retirement account there is: your contributions, not the earnings, can come back out at any age without penalty, which makes it a quiet second emergency fund.
A Health Savings Account needs a high-deductible health plan, and if you have one it is the best account in the tax code. Contributions are deductible, growth is tax-free, and withdrawals for medical costs are tax-free. After 65, anything left can be spent on anything at all, taxed like a regular IRA with no penalty. Pay small medical bills out of pocket now, keep the receipts, and let it grow.
The yearly limits for 2026 are $7,500 for a Roth IRA and $4,400 self-only or $8,750 family for an HSA, with extra room past 50 and 55 respectively.
Done when both are maxed for the year, or you are not eligibleWith the match, the debt, the cushion and the tax-free accounts handled, the work plan is the biggest tax-advantaged space you have left. Every dollar in it either skips tax now or skips tax later, and it is deducted from your paycheck before you can spend it, which is half the reason it works.
Your own contributions are capped by the IRS each year. The employer's match does not count against that cap. Past 50 you get an extra catch-up amount, and from 60 to 63 a larger one.
Some plans allow after-tax contributions above the normal cap that can be converted to Roth inside the plan. That is the mega backdoor Roth, and if your plan has it, it is the largest Roth space most people will ever see.
Done when the plan is maxed, or you already invest 25% of gross incomePensions are gone for most people and Social Security replaces only part of a paycheck. A quarter of gross income, invested for decades, is what replaces them. It is the rate that turns a good income into an independent one.
Once the tax-advantaged accounts are full, the rest goes into a regular brokerage account in low-cost index funds. It is not as tax-friendly, but it is completely flexible, and it is the account that funds a retirement before 59.5.
Done when 25% or more is going in and your plan says you are on paceThis is where the money for other people and other plans lives. It sits this far down not because it matters less, but because a parent who funded college and not retirement becomes the child's expense later, which is the opposite of the gift they meant to give.
For education, a 529 grows tax-free for school costs, often earns a state tax break, and stays in your name and control. A custodial account is more flexible in what it can be spent on but becomes the child's outright at adulthood. A child with real earned income can have a Roth IRA of their own, and a few thousand dollars at sixteen is a remarkable thing by sixty.
Done when the goals you set here are funded on the timeline you choseCheap debt goes last because it costs less than the market tends to earn, so every dollar that went ahead of it did more good. But a retirement with no mortgage is a retirement that needs far less income, and that lowers the number you need on every page of this site.
By this step you are already investing a quarter of your income and the big goals are funded. Extra dollars now go against the principal. Aim to arrive at retirement owing nothing to anyone.
Done when you owe nothing