After 15 years as a financial planner, I’ve established an order of operations to get someone’s house in order.
It starts by managing the risk first and then focusing on growth second.
Manage Your Risk First
If you step on a landmine, you need to be wearing one of those bomb removal suits.
These are ranked in order of destruction.
In other words, getting disabled and not earning your paycheck for the next 30 years could have a generational negative impact.
Whereas, dying without an estate plan will be a serious pain for those you leave behind, but shouldn’t cause generational damage.
1. Long-Term Disability Insurance
2. Life Insurance
3. Personal Umbrella Liability Insurance
4. Diversify company stock
5. Fully fund a 6-month emergency fund
6. Complete your estate plan
Focus On Growth Second
Unlike the destruction ranking, this is in order of impact.
For instance, taking full advantage of your employee benefits could double your money in the case of a 401k match or give you a 25% return w/ pre-tax deductions.
Alternatively, investing correctly will impact your finances over the long term, but as long as you’re not betting it all on crypto and investing in some boring index funds, you won’t blow yourself up.
6. Optimizing employee benefits (aka free money)
7. Fully fund college savings
8. Automate, then maximize your savings
9. Optimizing your portfolio (where you’re saving / how your invested)
Completing these in order is ideal. But the key takeaway is to manage the risk FIRST, then focus on the fun stuff.