Optimal Order of Investing For Financial Independence
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Investing for retirement is essential, but knowing the correct order of investments can significantly impact how efficiently you grow your wealth. By breaking the process into seven levels, each with specific goals, you can streamline your financial journey and ensure every dollar is working toward a secure future.
Level 1 starts with creating a spending plan to allocate income into fixed expenses, savings, investing, and discretionary spending. Simultaneously, building a minimum emergency fund of $1,000 to $2,000 provides a safety net for smaller unexpected costs.
Level 2 focuses on paying off high-interest debt, which erodes wealth, and investing in yourself by learning new skills or enhancing existing ones to increase earning potential.
Level 3 prioritizes contributing enough to employer-sponsored retirement plans to receive the full employer match, offering an instant 100% return on contributions.
Level 4 includes maxing out contributions to a Health Savings Account (HSA), leveraging its triple tax advantages, and building a fully funded emergency fund covering 3 to 12 months of expenses to prepare for larger financial shocks.
Level 5 explores individual retirement account (IRA) options, such as Roth or Traditional IRAs, based on current and future tax brackets, and introduces taxable brokerage accounts for flexibility in achieving mid-term goals like buying a house or retiring early.
Level 6 involves contributing beyond the employer match in workplace retirement accounts to accelerate savings while allowing for intentional lifestyle upgrades that enhance quality of life without jeopardizing future financial goals.
Level 7 addresses paying off low-interest debt, which becomes a personal preference rather than a financial necessity. If ahead on retirement savings, eliminating this debt may offer peace of mind.
Two bonus investment opportunities can fit anywhere after Level 3: physical real estate, offering potential high returns for those willing to manage it, and investing in a business, providing unlimited growth potential if successful.
Each step builds on the previous one, ensuring that financial priorities are addressed in an order that maximizes growth, minimizes risk, and allows room for personal enjoyment along the way. By following this structured approach, you can create a balanced, well-rounded path to long-term financial security.
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Disclaimer: This video is for entertainment purposes only. Everyone's situation is different so do your own research before making any decisions with your money.
