I recently watched a talk by Steve Chen, founder of CALLTOLEAP, where he outlined the optimal order for allocating your money if you bank with major institutions like Chase, Wells Fargo, or Bank of America. His advice struck me as both practical and eye-opening, especially considering how many of us are making critical mistakes with our financial planning.
As someone who has helped many friends organize their finances, I’ve seen firsthand how people often jump straight into investing without building the proper foundation. Chen’s approach offers a clear roadmap that I believe everyone should follow.
The Right Order for Your Money
Chen outlines a five-step approach that makes perfect sense when you think about building wealth strategically:
- Keep approximately two months of funds in your checking account for regular bills
- Contribute about $300 monthly to a high-yield savings account until you’ve built a 3-6 month emergency fund
- Put roughly $500 monthly into your 401(k) until you reach your company’s match
- Contribute to a tax-advantaged retirement account like a Roth IRA ($583 monthly if under 50, $666 if older)
- Only then consider additional contributions to 401(k), SEP IRA, HSA, or taxable brokerage accounts
This hierarchy prioritizes security and tax advantages before jumping into the stock market through regular brokerage accounts. It’s a sensible approach that too many people ignore.
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The #1 Mistake Most People Make
What really resonated with me was Chen’s identification of the biggest financial mistake he sees: people opening taxable brokerage accounts (like Robinhood) and starting to invest before establishing their emergency fund and maxing out tax-advantaged accounts.
I’ve been guilty of this myself. The allure of quick gains in the stock market can be tempting, especially with user-friendly apps making it so accessible. But this approach is backward. Every dollar you invest in a taxable account before maxing out tax-advantaged options is potentially leaving money on the table.
You always want to build an emergency fund and get those tax advantage accounts first.
This statement by Chen should be a mantra for anyone serious about building wealth. The tax benefits of accounts like 401(k)s and Roth IRAs are essentially free money that compounds over time.
Why This Order Makes Financial Sense
The beauty of this approach is how it balances immediate needs with long-term growth:
- Your checking account covers immediate expenses
- Your emergency fund provides security against unexpected costs
- Your 401(k) match captures free money from your employer
- Your Roth IRA or similar accounts provide tax-free growth
Only after these foundations are solid should you consider additional investment vehicles. This creates a financial safety net while maximizing growth potential.
I find it particularly interesting that Chen, a former public school teacher, emphasizes that this information should have been taught in schools. Financial literacy remains a critical gap in our education system, leaving many of us to learn these lessons the hard way.
Making This Work For You
Implementing this strategy doesn’t require complex financial knowledge. It simply requires discipline and understanding the order of operations. Start by evaluating where your money currently sits and whether you’ve been prioritizing correctly.
If you’ve been investing in a taxable brokerage account while carrying high-interest debt or without an emergency fund, consider redirecting those funds according to Chen’s hierarchy. The peace of mind that comes with having proper financial security is worth far more than potential short-term market gains.
Building wealth isn’t about making flashy investments or timing the market perfectly. It’s about following a sensible, structured approach that prioritizes security and tax efficiency. By following Chen’s recommended order, you’re setting yourself up for sustainable financial growth rather than taking unnecessary risks.
The next time you receive a paycheck, consider where that money should go according to this hierarchy. Your future self will thank you for the wisdom and discipline you show today.
