Reflecting on The Financial Order of Operations
I appreciate the FOO a great deal. With that said, it’s definitely guidelines and guardrails territory in my brain. Whereas in math, if you must of the order or operations you get the wrong answer, there’s more flexibility in the FOO.
My interpretation of the FOO is reducing the impact of negative events, maximizing financial independence, and helping secure the future—emphasizing reducing the burden to others.
Steps 1, 3, and 4 cover the impact of negative events. Steps 2, 5, 6, 7, and 9 help maximize financial independence. Step 8 is about helping secure the future.
Saving up to put money on a house, for example, I’d put as a step 8 concept; however, I’m not sure how The Money Guy Show folks would feel about that.
I tend to appreciate additive, flexible systems and the FOO falls into that category for me.
The goal is to save up to cover insurance deductibles, however, it doesn’t say how you must go about that. For me, I removed reasons to have certain deductibles; I don’t own a car, therefore, my insurance deductible is low to non-existent, and I have insurance coverage (see non-owner’s insurance).
When I bought my first car I needed full coverage insurance and the only way I could afford it was have a high deductible. Instead of saving cash to cover the deductible I drove less and more cautiously (reduce risk of needing to tap the insurance). Further, I paid off the auto loan, which was almost the same as my deductible at the time, despite having a low interest loan for it.
The FOO doesn’t say, “You’re doing it wrong!” because it seems to be there to take emotion and psychology out of the equation.
With that said, as a set of guidelines and guardrails for playing the game of finances, it can inspire other behaviors that aren’t called out specifically. For example:
- To get past step 3, I shouldn’t (or can’t) be carrying a balance on high-interest loans, like credit cards. Reduce usage and expenses.
- If I’m getting my employer match (step 2), my take home pay will be less than it previously was. Reduce expenses.
This speaks to the financial independence of maximize income, minimize expenses, and save the gap. That mantra can be summarized by another mantra: Maximize your savings rate.