The financial planning flowchart that may work for just about everyone

We know everyone’s situation is a little bit different, but did you know that there are several common steps you can take that may help you optimize your finances?

Let’s break it down.

Step One: Make a budget

Sit down and tally up what you spend in a month (rent/mortgage, food, insurance, loans, etc.), maybe cancel all unused subscriptions (we know we certainly did), and set realistic goals.

Step Two: Build an emergency fund

Once you’ve figured out your monthly budget, it might be time to build up a security fund of cash to have on hand in case of an unexpected expense or loss of income. How much to keep on hand depends on your situation, but three to six months’ worth of expenses plus any one-time expense(s) is our basic rule of thumb.

Step Three: Contribute to employer-sponsored matching funds

If your employer offers a retirement account (401k, 403b, etc.), figure out how much your employer matches. Contribute at least enough to receive the full employer match — that’s free money.

Step Four: Pay down high-interest debts

If you have high-interest debts — like a balance on a credit card — paying that down next could save you a lot of money. If you’ve got low-interest debts and you’re on top of the payments (like a car loan with 3% interest), you may not need to change anything. While some strongly oppose carrying any kind of debt, at Fifr we believe in putting every dollar to its best use, which could mean carrying low interest debt and putting the extra cash flow somewhere else, like a high yield savings account that earns more than 3%.

Step Five: Set aside savings for retirement in an IRA

What to do with this step depends on income levels.

If you make under $146,000 in modified adjusted gross income as an individual or under $230,000 as a couple (Note: These numbers are valid for 2024 and subject to change each year), you can contribute to an IRA, which carries certain tax advantages. The annual IRA contribution limits change, so make sure to check the IRS website to see how much you are allowed to contribute.

You’ll have to choose between a traditional and Roth IRA. If you’re not sure of the difference, we’ve got an upcoming newsletter we think you’ll love.

If you make over the income limits in any given year, you should use a tax strategy commonly referred to as a “backdoor Roth" to secure the tax advantages.

Step Six: Save more for retirement

Go back to Step Three and contribute what's possible to your employer’s retirement plan. The contribution limits change each year, so check the IRS website.

Step Seven: Try out some advanced methods

Here’s the fun part, according to us, but we love personal finance. Once you've gone through all the steps, it could be a good time for other tax advantaged accounts, such as 529 plan for education expenses or a mega-backdoor Roth (if your employer retirement plan allows one).

If you have leftover monthly cash, you can also put some money to work in a taxable brokerage or explore paying off low interest debts, depending on your situation.

Want to know more?

Whether you’re looking to save for college, buy a home, or learn how to best use those tax-advantage accounts (or want to know what, exactly, this “mega-backdoor Roth” thing is?), we’d love to talk through the details of how to make this general plan specific for you and your goals. Set up a (free!) one-on-one with a Fifr Financial Wellness Expert here.

Disclaimer: The information provided is not financial, legal or tax advice. The steps and recommendations provided above are for educational purposes only, do not take into account the specific circumstance of the reader, and may not be suitable for everyone’s financial situation. Please refer to our full content disclosure here.

Check out our website, schedule a free one-on-one call with a Fifr Financial Wellness Expert, or reach out directly. We can’t wait to hear from you.