Savings
Savings are the bridge between earning and investing, the third of the four levers introduced in the Foundation. This part covers how much to save, where to keep it, and how to make the whole process automatic so willpower isn’t part of the equation.
The Financial Order of Operations
Before diving into how much to save and where to keep it, you need a strategic framework for where your money goes. Once you know your income and have categorized your expenses, the next question is: where should your available money actually go? Brian Preston (The Money Guy Show) answers this with the Financial Order of Operations (FOO) — a fixed sequence of nine steps, each one funded before moving to the next.1
| 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 FOO doesn’t replace your budget; it 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, it must be protected from being consumed by emergencies. Steps 5–7 fund tax-advantaged and taxable investing for long-term growth through behavioral compliance and simplicity (Ben Felix and Bogle’s emphasis). Steps 8–9 handle planned future expenses and low-interest debt payoff.
This part of the book focuses on steps 1–4, which all involve saving before investing. Steps 5–7 (the investing side) are covered in the Investing part. Throughout, Sethi’s principle guides us: pay yourself first by automating savings before spending, removing willpower from the equation.
Principles for Consistent Saving
The chapters that follow are grounded in research and experience from five trusted voices in personal finance. Here’s what each contributes to building a savings practice that works:
Morgan Housel (behavioral finance): Consistency beats optimization. A modest savings rate you maintain for 30 years outpaces aggressive saving you abandon after 18 months. Before your savings can grow, it must be protected from being consumed by emergencies.
Ramit Sethi (conscious spending plan): Pay yourself first. Automate savings before you see the money. This removes savings from willpower and makes it automatic—your only job is to spend intentionally on what remains.
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 one you can maintain.
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.
A practical sequence:
- Build a starter buffer (covered in Emergency Fund).
- Pick a target savings rate (Savings Strategies).
- Park the money where it actually grows (High-Yield Savings Accounts).
- Automate the whole flow (Automating Savings).
From there, the money is ready to feed into Investing.
See the full guide at moneyguy.com/guide/foo (Preston 2024).↩︎