0:00 You know what drives me absolutely crazy? Watching people throw money at the stock market like they're feeding coins into a slot machine, completely ignoring the fact that they've got credit card debt, charging them 22% interest, sitting right there laughing at them. It's like trying to fill a bucket that has massive holes in the bottom and wondering why you're not making any progress. My name is Nick and I spend way too much time thinking about money, optimal investment strategies, and why most people seem determined to do everything in the wrong order when it comes to building wealth. If you're someone who actually wants to understand the proper sequence for investing your
0:45 money instead of just throwing dollars at whatever sounds exciting, make sure to hit that subscribe button and give this video a thumbs up if it ends up saving you from some expensive mistakes. Here's something that might shock you. According to recent data, 1 in three Americans doesn't even have an emergency fund. The median amount that Americans have saved for emergencies is a whopping $500. That's less than most people's monthly car payment, and it's actually down from $600 just a year ago. Meanwhile, these same people are asking me whether they should buy individual stocks or invest in cryptocurrency. It's like asking whether you should buy a Ferrari when you don't even have enough money to fix the transmission in your current car. The truth is, there's an optimal order
1:32 for investing your money that can literally save you tens of thousands of dollars over your lifetime and dramatically accelerate your path to financial independence. But most people completely ignore this sequence because it's not as exciting as picking the next hot stock or trying to time the market. They want to skip straight to the fun stuff without doing the boring foundational work that actually matters. Today, I'm going to walk you through the exact order you should be investing your money step by step so you can maximize your returns while minimizing your risk. And I guarantee some of this is going to surprise you, especially the part about why your employer match should come before almost everything else and why health savings accounts might be the
2:18 most powerful investment vehicle most people are completely ignoring. But before we dive into the specific steps, let me tell you why getting this order wrong can be so devastating. Imagine you're building a house. you you wouldn't start by picking out um fancy light fixtures and granite countertops if your foundation was cracked and your roof was leaking. Yet, that's exactly what most people do with their finances. They get excited about investing in the latest trendy ETF while carrying highinterest debt that's guaranteed to destroy any gains they might make. The opportunity cost of getting this wrong is massive. At every month, you delay paying off. Credit card debt that's charging you 22% interest is a month where that debt is growing faster than
3:04 almost any investment you could reasonably expect to make. Every month you ignore your employer's matching contribution is literally free money you're leaving on the table. And every month you contribute to a taxable investment account before maxing out your tax advantaged options is money you're unnecessarily handing over to the IRS. Before you invest a single dollar anywhere, you need to establish an emergency fund. Now, I know this sounds boring. I know you'd rather hear about which stocks are going to make you rich. But here's why this matters more than you think. An emergency fund isn't just about having money for unexpected expenses, though that's certainly important. It's about creating a psychological safety net that prevents you from making terrible financial
3:49 decisions when life inevitably throws you a curveball. When your car breaks down or you face an unexpected medical bill, having an emergency fund means you don't have to sell your investments at the worst possible time or rack up highinterest debt to cover the expense. The question everyone asks is how much should you save for emergencies? The traditional advice is 3 to 6 months of living expenses, but honestly, that range is so broad it's almost useless. The amount you need depends on several factors. If you have a stable government job with great benefits, you might be fine with 3 months of expenses. If you're a freelancer in a volatile industry with no safety net, you might need closer to 6 months or even more.
4:35 Here's what I recommend for most people. Start by saving your first thousand dollar as quickly as possible. This covers most minor emergencies and gives you that psychological safety net. Then work toward one month of living expenses. Um once you hit that milestone, keep building until you reach 3 months of expenses. This approach breaks down what can feel like an overwhelming goal into manageable chunks. But here's something interesting that most people don't realize. Uh, recent research from Vanguard found that people with at least $2,000 in emergency savings had financial well-being scores that were 21% higher than those without any emergency fund. That was the largest
5:22 boost linked to any financial factor they measured. $2,000 isn't life-changing money, but the psychological impact of having that buffer is enormous. Once you've got your emergency fund in place, the next step is absolutely critical. You need to eliminate all highinterest debt before you invest anything else. And when I say highinterest debt, I'm talking about anything charging you more than about 8% annually. Though the threshold can vary depending on current market conditions. Credit card debt is the obvious villain here. With average interest rates over 22%, credit card car debt is financial cancer. It grows faster than almost any reasonable investment return you could expect. Which means carrying credit card
6:07 debt while investing is like trying to run a marathon with a backpack full of rocks. Mathematically, paying off debt with a guaranteed high interest rate provides a guaranteed return equal to that interest rate, which is often higher than what you can reasonably expect from the stock market after taxes. Let me put this in perspective. If you have $5,000 in credit card debt at 22% interest and you make only minimum payments, you'll pay nearly $2,800 in interest over 5 years. That's money that could have been working for you instead of against you. Every dollar you use to pay down that debt is essentially earning you a guaranteed 22% return, which is better than Warren Buffett's long-term average. The strategy for paying off debt
6:54 efficiently is straightforward. List all your debts with their interest rates and minimum payments. Pay the minimums on everything, then throw every extra dollar at the debt with the highest interest rate. This is called the debt avalanche method and it saves you the most money mathematically. Some people prefer the debt snowball method where you pay off the smallest balances first for psychological motivation, but the avalanche method is more efficient. Here's where it gets interesting though. I've already there's one major exception to the rule about paying off debt before investing. And it's so important that it actually becomes the next step in our optimal investment order. If your employer offers matching contributions to your retirement plan, you should contribute enough to get the full match even before you finish paying off
7:39 highinterest debt. This might seem counterintuitive, but the math is compelling. Employer matching is essentially a guaranteed 100% return on your investment up to the match limit. Even if you're carrying credit card debt at 22%, getting a 100% immediate return usually makes sense. It's like finding money lying on the ground that your employer will double if you pick it up. Here's a typical example. Your employer might match 50 cents on the dollar up to 6% of your salary. If you earn $50,000 annually, contributing $3,000 to get the full $1,500 match represents a 50% immediate return plus whatever your investments earn over time. No other investment opportunity can guarantee
8:24 that kind of return. The key is to contribute just enough to get the full match. Then redirect all your extra money back to paying off highinterest debt. Once the debt is gone, you can increase your retirement contributions. This strategy maximizes your guaranteed returns while minimizing the time you're paying high interest rates. Uh there's one important caveat to consider with employer matching, though. Um, some companies have vesting schedules that determine how long you need to stay with the company to keep the matching funds. If you don't plan to stay at your current job for very long, make sure you understand the vesting schedule. However, even with vesting requirements, the immediate return from employer matching usually makes it worthwhile. This foundation of an emergency fund,
9:11 debt elimination, and employer matching creates the bedrock of your financial house. without without these pieces in place, everything else you do with investing is essentially building on quicksand. Once you've got those foundational pieces locked down, we move into what I call the tax optimization zone. And this is where things get really interesting. Most people completely mess this up because they get distracted by shiny objects and skip right to taxable investment accounts when they should be maximizing every tax advantaged option available to them first. Now, we get to maximizing your individual retirement account. And here's why. This comes before putting more money into your employer's 401k. Your IRA gives you far more control over
9:58 your investment choices and typically comes with much lower fees than most employer plans. Corporate 401k plans are notorious for offering a limited menu of expensive mutual funds with management fees that can eat into your returns like termites in a wooden house. You know, with an IRA, you can invest in lowcost index funds and ETFs that charge fees of just a few basis points instead of the 1 to 2% fees common in many 401k plans. That might not sound like much, but over decades, those fee differences can cost you tens of thousands of dollars. It's the difference between keeping your money and slowly feeding it to fund managers who drive nicer cars than you do. For 2025, you can contribute up to
10:45 $7,000 to an IRA or $8,000 if you're 50 or older. The catch-up contribution is like a participation trophy for getting old, except this one actually helps you retire comfortably. Uh once you've maxed out your IRA contributions, then you can go back to your employer's 401k and start contributing beyond the match. But here's where the decision gets more complex, and it's something that keeps financial adviserss employed and ordinary people confused. You need to choose between traditional and Roth versions of these accounts. And the choice can literally save or cost you thousands in taxes over your lifetime. The decision boils down to a simple question that has a complicated answer.
11:31 Do you want to pay taxes now or later? Traditional accounts let you deduct contributions from your current taxable income, but you pay taxes when you withdraw the money in retirement. Roth accounts make you pay taxes upfront, but then all your withdrawals in retirement are completely tax-free. Here's the general rule that works for most people. If you're currently in a high tax bracket and expect to be in a lower one in retirement, choose traditional accounts to get the tax deduction now. If you're in a lower tax bracket now, but expect to be in a higher one later, choose Roth accounts to pay the lower tax rate today. The problem is that predicting future tax rates is about as reliable as predicting the weather 3
12:16 months from now. Young people starting their careers should probably lean toward Roth accounts because they're likely in their lowest earning years. And tax brackets will probably only go up from here. High earners who are hitting their peak income years might benefit more from traditional accounts to reduce their current tax burden. But honestly, if you're not sure, splitting your contributions between both types creates tax diversification and gives you options in retirement. If you happen to have access to a health savings account, this is where things get really exciting because HSAs might be the most underutilized investment vehicle in America. They're like the Swiss Army knife of tax advantaged accounts, offering not one, not two, but three
13:02 different tax benefits that make them absolutely incredible for the right people. You get a tax deduction for contributions just like a traditional IRA. Your money grows taxfree while invested, just like any retirement account. And here's the kicker that makes HSAs special. Withdrawals for qualified medical expenses are completely tax-free even in retirement. It's the only account that gives you tax benefits on the way in while the money grows and on the way out. For 2025, you can contribute up to $4,300 to an HSA if you have individual coverage or up to $8,550 for family coverage. The catch is that you need to have a high deductible health plan to be eligible, which isn't right for everyone. If you're young,
13:48 healthy, and don't have significant medical expenses, an HSA can be one of the most powerful retirement accounts available. Here's the strategy that makes HSAs incredibly powerful. Pay for your current medical expenses out of pocket if you can afford to, and let your HSA money stay invested in the market. Keep all your medical receipts because there's no time limit on when you can reimburse yourself for qualified expenses. You could pay for a doctor visit today, keep the receipt, and reimburse yourself from your HSA 20 years from now tax-free. After age 65, HSAs become even more flexible. You can withdraw money for any purpose, not just medical expenses, though uh you'll pay income tax on non-medical withdrawals
14:34 just like a traditional IRA. But medical expenses in retirement are essentially guaranteed. So having a pile of tax-free money specifically for health care costs is like having a secret weapon against one of retirement's biggest financial risks. The math on HSAs can be absolutely stunning. Um if you max out HSA contributions for 30 years and achieve a 7% annual return, you could have over $400,000 in completely tax-free money available for medical expenses. Given that the average couple retiring today will spend over $300,000 on health care throughout retirement, an HSA can essentially make those costs disappear from your retirement budget. Once you've maximized your HSA
15:21 contributions, you go back and max out your 401k contributions beyond the employer match. The 2025 contribution limit is $23,500 for most people or 31,000 if you're 50 or older. At this point, you're really cooking with gas from a tax perspective. Between your IRA, HSA, and 401k, you could potentially shelter over $35,000 annually from current taxation if you're under 50 or even more if you're eligible for catch-up contributions. That's serious money that gets to compound without the IRS taking their cut every year. Here's something that might surprise you about this whole process. Most people never get past this point.
16:08 The average American saves about 6% of their income, which usually isn't enough to max out even their employer match and IRA contributions, let alone everything else. But if you're one of those people who can actually work through this entire sequence, congratulations. You're already in the top 5% of savers in America, and you're setting yourself up for a retirement that most people can only dream about. The beautiful thing about following this optimal order is that each step builds on the previous ones, creating a financial foundation that gets stronger over time. Your emergency fund prevents you from derailing your progress when life happens. Eliminating highinterest debt stops you from bleeding money to interest payments. Maximizing employer
16:55 matching gives you guaranteed returns. Tax advantaged accounts let more of your money compound without government interference. Right? [snorts] But we're not done yet. Once you've worked through all these tax advantaged options, that's when we finally get to the step that most people want to start with, taxable investment accounts. And there's a very specific strategy for how to approach this final step that can make the difference between building serious wealth and just having a hobby that occasionally makes money. Taxable investment accounts are the wild west of investing where you can buy individual stocks, trade options, speculate on cryptocurrency, or just invest in good old index funds without any contribution limits or withdrawal restrictions. It's also where most people make their
17:40 biggest mistakes because they think having access to every investment under the sun automatically makes them smarter. Here's the thing about um taxable accounts that drives me nuts. People get so excited about the flexibility and unlimited contributions that they completely forget about the tax drag. Every dividend payment gets taxed. Every time you sell an investment for a gain, the IRS wants their cut. It's like running a race while someone keeps throwing sand in your shoes. You can still finish, but it's going to be a lot harder than it needs to be. The tax efficiency of keeping money in retirement accounts versus taxable accounts can be absolutely staggering over time. Let's say you invest $10,000
18:27 annually for 30 years. In a tax advantaged account earning 7% you end up with about $944,000. In a taxable account with the same return but paying taxes on dividends and capital gains along the way, you might end up with closer to $700,000. That's nearly a4 million difference just from tax drag. But here's where taxable accounts become valuable once you've maximized everything else. They offer complete flexibility. Need money for a house down payment in 5 years? No problem. Want to retire early before you can access your retirement accounts? Taxable accounts give you the bridge
19:12 funding you need. Planning to leave money to your kids? Taxable accounts get a step up in basis when you die, which can eliminate capital gains taxes entirely. So, there you have it. The optimal order for investing your money that most people completely ignore in their rush to get rich quick. Emergency fund, highinterest debt, employer match, IRA, HSA, max out that 401k, then finally taxable accounts. Follow this sequence and you'll be building wealth while everyone else is still trying to pick the next Tesla. Your future self will thank you for doing the boring stuff first.
