The Money Stack: Knowing Where Your Next Dollar Should Go

There is no shortage of financial advice.

Save for retirement. Build an emergency fund. Pay down debt. Invest for the future. Open an HSA. Max out your IRA.

Most of it is good advice. The challenge is that when every financial goal feels important, it's difficult to know which one deserves your next dollar. Many people end up trying to make progress on everything at once, only to feel like they aren't getting very far.

That's why I like to think about financial planning as a Money Stack. Instead of viewing your goals as competing priorities, imagine them as layers. Just as a house needs a solid foundation before you build the second floor, your financial life is strongest when each layer supports the next.

The exact order isn't the same for everyone, but this framework can help you decide where your money may have the greatest impact today.

Start With Your Employer Match

If your employer offers a matching contribution to your retirement plan, this is often the first place your next dollar should go.

Employer matching is one of the few opportunities where your savings may receive an immediate boost. According to Vanguard, the average employer match is about 4.6% of pay. If you're not contributing enough to receive the full match, you could be leaving part of your compensation on the table.

Build an Emergency Cushion

Once you've captured your employer match, the next priority is creating a financial cushion for life's surprises.

Unexpected expenses are inevitable. Whether it's a car repair, an emergency room visit, or a broken appliance, having cash available can prevent a temporary setback from becoming long-term debt. A good starting point is about one month's worth of essential living expenses, with the goal of continuing to build from there over time.

Take Advantage of Tax-Preferred Accounts

After you've established a basic emergency fund, it's time to make your savings work more efficiently.

Accounts such as 401(k)s, IRAs, Roth IRAs, and Health Savings Accounts (HSAs) provide valuable tax benefits that can help more of your money stay invested over time. Depending on the account, you may receive a current tax deduction, tax-free growth, or tax-free withdrawals for qualified expenses. Used strategically, these accounts can become powerful tools for building long-term wealth.

Invest Beyond Retirement Accounts

Tax-advantaged accounts are an excellent place to save, but they aren't your only option.

Once you've taken advantage of those opportunities, additional savings can be directed into a taxable investment account. These accounts offer flexibility because the money isn't restricted by retirement account withdrawal rules. They can be useful for goals such as buying a vacation home, helping children or grandchildren, or simply creating additional financial flexibility before retirement.

Focus on the Next Layer—Not Every Layer

One of the biggest mistakes I see is people trying to accomplish every financial goal at the same time. They save a little here, invest a little there, and pay down a little debt, yet never feel like they're making meaningful progress.

The Money Stack encourages a different way of thinking. Rather than asking, "How do I do everything?" ask, "What's the next most important step?" By strengthening each layer before moving to the next, you build a more stable financial foundation and give yourself a better chance of reaching your long-term goals.

How Birch Street Financial Advisors Can Help

Knowing where your next dollar should go isn't always straightforward. The right answer depends on your age, income, tax situation, retirement timeline, and financial goals.

At Birch Street Financial Advisors, we help clients prioritize their financial decisions so each dollar is working as efficiently as possible. Whether you're just getting started, preparing for retirement, or somewhere in between, we can help you identify the next step that makes the most sense for your situation and build a plan that supports your long-term goals.

The Bottom Line

Financial planning doesn't have to mean trying to do everything at once. By focusing on one priority at a time and building a strong foundation, you can make steady progress toward the future you want while feeling more confident about the decisions you're making along the way.