Savings


Savings are the bridge between earning and investing; they’re the third of the four levers introduced in the Foundation. In this part of the book I’ll cover how much to save, where to keep it, and how to make the whole process automatic so willpower isn’t part of the equation.

Savings and the Financial Order of Operations

Once you know your income and have categorized your expenses, the next question is: where should your available money actually go? To answer it, we’ll lean on Brian Preston’s Financial Order of Operations (FOO).1 The FOO is a fixed sequence of nine steps, each one funded before moving to the next.2

The Financial Order of Operations (Money Guy Show)
Step Priority Why it comes first
1 Deductibles covered Cash on hand for your insurance deductibles avoids new debt from a routine claim.
2 Employer match Free money from a 401(k)/403(b) match beats any other use of the next dollar.
3 High-interest debt Toxic-rate debt compounds faster than any investment; see Managing Debt.
4 Emergency reserves 3–6 months of essential expenses in cash; see Emergency Fund.
5 Roth IRA / HSA Tax-free growth, funded while your income still qualifies.
6 Max-out retirement Push tax-advantaged retirement accounts to their annual limits.
7 Hyperaccumulation Taxable brokerage investing once retirement accounts are maxed.
8 Prepaid future expenses Kids’ education, a down payment, or other planned large costs.
9 Low-interest debt Extra payments on mortgages, once everything above is funded.

The diagram below shows the same nine steps as a ladder: fund each rung before you climb to the next.

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flowchart TD
    Start(["Money your<br>budget frees up"]) --> S1
    S1("i. Deductibles covered")
    S1 --> S2
    S2("ii. Employer match")
    S2 --> S3
    S3("iii. High-interest debt")
    S3 --> S4
    S4("iv. Emergency reserves")
    S4 --> S5
    S5("v. Roth IRA / HSA")
    S5 --> S6
    S6("vi. Max-out retirement")
    S6 --> S7
    S7("vii. Hyperaccumulation")
    S7 --> S8
    S8("viii. Prepaid future expenses")
    S8 --> S9
    S9("ix. Low-interest debt")
    style Start fill:#48a56a,color:#F5F2E8,stroke:#1C1C1E,stroke-width:2px
    style S1 fill:#0e9aa7,color:#F5F2E8,stroke:#1C1C1E,stroke-width:2px
    style S2 fill:#0e9aa7,color:#F5F2E8,stroke:#1C1C1E,stroke-width:2px
    style S3 fill:#f44242,color:#F5F2E8,stroke:#1C1C1E,stroke-width:2px
    style S4 fill:#f44242,color:#F5F2E8,stroke:#1C1C1E,stroke-width:2px
    style S5 fill:#48a56a,color:#F5F2E8,stroke:#1C1C1E,stroke-width:2px
    style S6 fill:#48a56a,color:#F5F2E8,stroke:#1C1C1E,stroke-width:2px
    style S7 fill:#48a56a,color:#F5F2E8,stroke:#1C1C1E,stroke-width:2px
    style S8 fill:#86ddcd,color:#1C1C1E,stroke:#1C1C1E,stroke-width:2px
    style S9 fill:#86ddcd,color:#1C1C1E,stroke:#1C1C1E,stroke-width:2px

The Financial Order of Operations

The FOO isn’t a budget; it’s a strategic framework that tells you what to do with the money your budget frees up, one step at a time:

  • Steps 1–2 establish protection and capture free employer money. This reflects Bogle’s low-cost principle: free money (the employer match) beats any other use of the next dollar.

  • Steps 3–4 eliminate dangerous debt and build emergency reserves. Morgan Housel’s insight applies directly here: before your savings can grow, they have to be protected from emergencies.

  • Steps 5–7 fund tax-advantaged and taxable investing for long-term growth. Ben Felix and Bogle both emphasize what makes this stage work: sticking with the plan (behavioral compliance) and keeping it simple.

  • Steps 8–9 handle planned future expenses and low-interest debt payoff.

In this part of the book we’ll focus on steps 1–4, which all involve saving before investing. Steps 5–7 (the investing side) are covered in the Investing part. Throughout, we’ll follow Sethi’s principle to pay yourself first: automate your savings before you spend anything, and willpower drops out of the equation.

Principles for Consistent Saving

The chapters that follow lean on five voices in personal finance that I trust. Here’s what I’ve taken from each of them about building a savings practice that actually works:

Morgan Housel (behavioral finance): Consistency beats optimization. A modest savings rate you keep up for 30 years outpaces aggressive saving you abandon after 18 months. Before your savings can grow, they have to be protected from emergencies.

Ramit Sethi (conscious spending plan): Pay yourself first. Automate your savings before you ever see the money. Once saving no longer depends on willpower, your only job is to spend intentionally on what’s left.

Ben Felix (evidence-based investing): Behavioral compliance matters more than perfect strategy. A budget or savings plan you follow imperfectly beats one you abandon. The best savings rate is the one you can keep up.

John Bogle (simplicity principle): You don’t need complex tactics. Low-friction systems that work beat sophisticated ones that don’t. Free money (the employer match) beats any other use of the next dollar.

Brian Preston (Financial Order of Operations): Prioritize ruthlessly. Every dollar should flow in a fixed sequence: protection, then employer match, then debt elimination, then emergency reserves, then investing. Know the order before you start.

Here’s the practical sequence we’ll follow:

  1. Build a starter buffer (covered in Emergency Fund).
  2. Pick a target savings rate (Savings Strategies).
  3. Park the money where it actually grows (High-Yield Savings Accounts).
  4. Automate the whole flow (Automating Savings).

From there, the money is ready to feed into Investing.

  1. We introduced the Financial Order of Operations in the Budgeting chapter and again in the Debt and the FOO section of Managing Debt.↩︎

  2. See the full guide at moneyguy.com/guide/foo (Preston 2024).↩︎