Do you recall the mnemonic “Please Excuse My Dear Aunt Sally?” Many of us learned in our elementary school math class that the correct order in which certain math problems are to be solved is Parentheses, Exponents, Multiplication, Division, Addition, Subtraction. This applies to any given mathematical expression in which there are multiple operations. It is a rule that can always be followed. It is fixed.

What you did not likely learn in your elementary math class is a financial order of operations – steps you should take, at any given time, to best utilize your cash flow.

The difference between the order of operations we all learned about in elementary school math and the financial order of operations is that the former is set in stone, while the latter is completely dependent on your unique situation.

When financial conditions change, many people often come to us for guidance on what to do with their new situation. Maybe the change is a new job or a significant raise. It could be a financial windfall, such as a gift from a family member, employer stock options, or an inheritance. These circumstances require cash flow planning. One of the things that we do at Strategic Path is work with you to help create an order of operations for your money.

Below are some common considerations when building out your order of operations:

Do you have an emergency fund?

If the answer is no, this is a great place to put money until you have one built.  The rule of thumb is to have 3-12 months of expenses in a savings account that you can access if there is an emergency or if something happens to your job.

Are you saving for a specific goal?

Are you buying a first or second home? Is there a milestone vacation, a wedding, or an educational expense for which you are saving? You could be saving for a dream car or an expensive piece of art. If your goal is to save up for a big purchase, this impacts your order of operations.  

Do you have debt that you want to eliminate?

This debt may come from student loans. It could be a credit card or a personal line of credit.  You might even have the goal of paying off your mortgage early. How much of your monthly income should go towards this? If you received an inheritance, is the best use of the money to pay off your mortgage or do something else?

Are you on track for retirement?

One question to ask yourself is “How much should I save for retirement?” This answer will depend on how long you have until retirement, how much you will need to spend in retirement, your rate of return, and how much you currently have saved. There are even more questions to ask to answer that question, but these are a few that would get us going in the right direction.

The questions above are just the starting point to figuring out your unique order of operations.  Once you answer those, they will inevitably lead to more questions. If you need help getting your cash flow in order, contact us at Strategic Path for a complimentary consultation.  We can review your situation and see if we can help create your order of operations.  After all, 

10 – 2 x 3 = 4, not 24, because we know what order to use.

Author: Brian Hill, CFP®, Managing Partner/Advisor

Note: information is accurate at the time of publication, January 2023

Advisory services offered through Commonwealth Financial Network^®, Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through CES Insurance Agency or Strategic Path Wealth Management.