Chris’ Money Allocation Framework: 10 Steps to Build Your Wealth

Key takeaways

Establish an operating cash buffer of 1-2 months' expenses before any investments.
Secure an employer match on retirement contributions to maximize investment returns.
Prioritize paying off high-interest debt as it offers guaranteed returns.
Create a broader safety net to cover life disruptions beyond just emergencies.
Invest in tax-advantaged accounts after addressing safety nets and urgent debts.
Maintain flexibility with funds by using a taxable brokerage account.
Consider education investment as secondary to your personal financial health.
Utilize tax-loss harvesting and strategies for appreciated assets when donating to charity.

Summary

Introduction to Money Allocation Framework

Chris introduces his personal 10-step money allocation framework aimed at helping listeners prioritize savings, investments, and financial flexibility. He emphasizes that this isn’t about day-to-day spending but rather about how to strategically allocate any extra cash.

Step 1: Establish Operating Cash

The first important step is to have one to two months of regular expenses in cash. This acts as a cash flow buffer to manage expenses that arise before income is received and helps cover urgent needs without borrowing.

Step 2: Take Advantage of Employer Match

Next, Chris highlights the importance of securing any employer match in retirement accounts. He considers this a guaranteed return on investment that shouldn't be missed, even while addressing high-interest debt.

Step 3: Urgent Debt Payoff

Pay off high-interest debts, typically those above 8%, as they represent a guaranteed return by eliminating their accruing interest. Chris discusses preferable methods like the avalanche method and the snowball method.

Step 4: Create a Safety Net

Establish a broader safety net, which is not just an emergency fund but a cushion for various life disruptions, ideally holding three to nine months of expenses with low-risk earning options.

Step 5: Short-Term Goals Fund

Beyond the safety net, Chris advises allocating funds for short-term goals. These funds should be in liquid, low-risk investments to avoid needing to sell at a loss when reaching these goals.

Step 6: Debt Review

This involves assessing whether to pay off debt in the 6-8% range versus investing funds, considering tax implications and overall financial strategy.

Step 7: Tax-Advantaged Investing

Once the earlier steps are cleared, Chris emphasizes investing in tax-advantaged accounts like IRAs and HSAs to maximize savings on taxes.

Step 8: Brokerage Investing

With the foundational steps completed, setting up a taxable brokerage account is essential. Chris recommends investing in low-cost index funds for long-term wealth.

Step 9: Education Investing

Investment towards children's education via 529 plans is crucial, but Chris stresses the importance of prioritizing personal financial health first.

Step 10: Optional Debt Management

Finally, consider any optional debt under 6%. Here, the focus may be on personal peace of mind versus pure financial optimization.

Advanced Strategies

Chris discusses liquidity prioritization to allow flexible access to funds prioritizing cash savings and outlines advanced borrowing strategies with low-risk access to funds.

Listener Questions & Answers

Chris addresses listener concerns, providing tailored advice on utilizing money from house sales, effective investment strategies, and thoughts on financial advisors. He highlights the importance of proactive decisions concerning debts and investments.

Show notes

#235: Chris shares his personal 10-step money allocation framework to help prioritize savings, investments, and financial flexibility. He also dives into advanced strategies for tax optimization, liquidity, and real-world application through listener questions.

Link to Full Show Notes: https://chrishutchins.com/10-step-money-allocation-framework

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Resources Mentioned

Brian Feroldi’s Emergency Fund Size Formula

Wealthfront: Get $5k managed free here and get a 0.5% APY boost here

Daffy: Get free $25 for charity here

Direct Indexing: Frec

ATH Podcast

Ep #144: Leveraging Tax-Advantaged Accounts to Maximize Your Wealth with Katie Gatti Tassin

Ep #168: Building an Investment Portfolio to Grow and Protect Your Wealth with Chris Doyle

Ep #177: Best Bank Account Setup to Earn Interest on All Your Cash

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Full Show Notes

(00:00) Introduction

(02:03) Quick Episode Overview

(03:37) Step 1: Operating Cash

(05:14) Step 2: Employer Match

(06:21) Step 3: Urgent Debt Payoff

(07:56) Step 4: Safety Net

(11:49) Step 5: Short-Term Goals Fund

(13:30) Step 6: Debt Review

(15:44) Step 7: Tax-Advantaged Investing

(21:38) Step 8: Brokerage Investing

(30:16) Step 9: Education Investing

(31:23) Step 10: Optional Debt

(32:48) Why You Should Prioritize Liquidity

(37:51) Types of Alternative Cash Savings

(40:48) The Margin Call

(43:28) Listener Q1: Strategy for Using Money from House Sale

(47:07) Listener Q2: How to Leverage Tax-Loss Harvesting

(50:35) Listener Q3: Effective Ways to Manage Your Investment Portfolio

(55:00) Listener Q4: Thoughts on Financial Advisors

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