Investing Order Of Operations: Where to Invest Next?

When it comes to investing, deciding your next move isn’t always simple or straightforward. Should you invest for retirement, pay off debt or save for your kids’ college? With so many financial priorities vying for attention, it’s easy to get stuck.

But it doesn’t need to be complicated. Personal finance is nuanced, but in general, experts recommend hitting financial milestones in a particular order. Like learning to walk before you run, an investing order of operations can give you the strength and stability you need to grow long-term wealth.  

Here are eight steps to follow to take your finances from chaos to clarity. 

8 steps to follow the investing order of operations

In math class, the order of operations helped you calculate the answer by following a step-by-step process. Similarly, an investing order of operations encourages you to prioritize your financial goals in a certain progression. The goal is to master the basics first and lay some groundwork before moving on to more advanced financial strategies. 

Whether you’re just starting out in your career, tackling high-interest debt or wondering where to invest after maxing out your 401(k), this guide can help you prioritize what comes next.

However, these eight steps aren’t set in stone — everyone’s financial situation is unique. It’s often wise to consult with a financial advisor, who can provide personalized guidance based on your specific situation. 

Step 1: Maintain $1,000 in your savings account

If you’re living paycheck to paycheck, investing can be extremely risky. Before tackling other steps on this list, make sure you consistently maintain a minimum safety net of at least $1,000 in your savings account.

By doing so, you reduce the risk of overdrafting your account or coming up short on rent and other essential expenses. You’ll also be able to handle small emergencies without taking on credit card debt or tapping investments to cover them.

Why start here? This baseline savings keeps you on track while you work toward bigger financial goals.

Step 2: Get your employer match 

Once you have $1,000 in your savings, it’s time to sign up for your workplace retirement plan if you haven’t already. Once you’re signed up, make sure you’re contributing enough to get the company match. This is essentially free money for your future.

Generally, employers will match your first 3 to 6 percent in contributions. For example, if your job matches 100 percent of your 401(k) contributions up to 4 percent of your salary, and you earn $50,000 annually, contributing $2,000 ensures an additional $2,000 from your employer. That’s an immediate 100 percent return on your investment.

Skipping this step is like leaving cash on the table — so don’t do it.

An important note about employer matches: While your contributions are always yours to keep, the matching funds may come with strings attached — a vesting period. This means if you leave your job before that period is up, you could forfeit some or all of the employer match. So make sure to review the details of your retirement plan and understand the vesting schedule.

If you’re self-employed or your job doesn’t offer a retirement plan or matching contributions, you can’t take advantage of an employer match, so skip ahead to tackling debt.

Step 3: Pay off high-interest debt

High-interest debt is one of the biggest obstacles to building wealth. That’s why financial experts place it near the top of any financial priority list.

With credit card interest rates averaging over 21 percent, according to the Federal Reserve, it’s often the most expensive type of debt you can carry. So any returns you might earn on investments will likely get wiped out by the sky-high cost of credit card debt. That’s why it’s crucial to eliminate it as quickly as possible. Paying off these expensive obligations also frees up more of your income to save and invest.

If your credit card balances are weighing you down, consider transferring a portion of the debt to a card with a 0 percent introductory APR. These balance transfer cards allow you to avoid interest for a limited time, typically 12 to 18 months, which can help you make progress on paying down the balance.

However, you should be careful with 0 percent APR cards. After the introductory period ends, the interest rate can jump to 20 percent or more, turning it back into high-interest debt.

High-interest debt isn’t just credit card debt, though. It’s generally anything with an interest rate of 10 percent or more, such as personal loans or private student loans. 

It can also include an auto loan, especially if you have three years or more before the loan is paid off. If your car loan is above 10 percent and you have a decent credit score, consider refinancing to secure a lower rate — just avoid extending the loan term since this will cost you more in the long run.

If you have multiple high-interest debts, prioritize paying off the one with the highest interest rate first. This method, often referred to as the avalanche method, minimizes the amount of interest you’ll pay over time.

Alternatively, if you’re the type of person who likes to see quick progress, the snowball method — paying off the smallest balance first before moving to the next — can provide quick wins to keep you on track. While this may cost you more in interest, the psychological boost can help you stay committed to becoming debt-free.

Step 4: Beef up your emergency fund

Once you’ve eliminated high-interest debt from your life, it’s time to give your savings more attention. Most financial experts recommend having enough cash in an emergency fund to cover three to six months’ worth of living expenses. 

Why so much? Life is unpredictable. You don’t want a job loss, medical emergencies or unexpected home repairs to derail your progress. Having a substantial safety net helps you avoid taking on debt and keeps you from selling your investments during tough times.

Your emergency fund needs to be easily accessible — you don’t want to get hit with taxes or penalties to access your cash. High-yield savings accounts are an excellent option. Online banks often offer higher interest rates than traditional brick-and-mortar banks, helping your emergency fund grow a little while staying safe and liquid. 

Bankrate’s list of the top high-yield savings accounts can give you an idea of how much interest you could earn annually by choosing the right account.

Step 5: Begin contributing to a Roth IRA

With your emergency fund fully funded, it’s time to invest for the future. A Roth IRA is a powerful tool for retirement savings, offering tax-free withdrawals later in life. 

There are several reasons financial experts recommend focusing on a Roth IRA before maxing out your 401(k) or investing in a taxable brokerage account:

1. Tax-free growth and withdrawals: Unlike traditional IRAs and traditional 401(k)s, Roth IRAs allow you to withdraw contributions and earnings tax-free in retirement, giving you more flexibility when you need it most.
2. Lower contribution limits: Roth IRAs are easier to max out. For 2025, the contribution limit is $7,000 (or $8,000 if you’re age 50 or older), compared to the $23,500 limit for 401(k) plans (plus an additional $7,500 catch-up contribution for those over 50).
3. Greater investment flexibility: Roth IRAs offer a broader range of investment options than workplace plans, allowing you to customize your portfolio. 

You can open a Roth IRA at major brokers like Charles Schwab and Fidelity, with no account minimums. Working with a financial advisor can help you find the most cost-effective investments for your Roth IRA. Or you can check out Bankrate’s list of the best Roth IRA investments. 

However, if you’re a high income earner, take note that Roth IRAs do have income limits:

• For single filers: $150,000 to $165,000 
• For married couples filing jointly: $236,000 to $246,000
• For married and filing separately: Up to $10,000

If your income exceeds these limits, you can still benefit from a Roth IRA by using the backdoor Roth IRA strategy. This involves contributing to a traditional IRA and then converting it to a Roth, a legal loophole that allows high earners to take advantage of a Roth’s tax benefits. 

Once you’ve maxed out your Roth IRA, you can return to your workplace retirement plan to maximize your contributions there.

Step 6: Max out your workplace retirement account

Maxing out your 401(k) is one of the most challenging steps in the investing order of operations. The contribution limits are high for 401(k)s — $23,500 in 2025, with an additional $7,500 for those 50 and older — so maxing out these accounts requires significant income and discipline.

Workplace retirement plans typically come in two varieties, similar to IRAs: traditional and Roth. 

With a traditional 401(k), contributions lower your taxable income in the year they’re made, reducing your immediate tax bill. However, withdrawals in retirement are taxed as ordinary income. 

Meanwhile, contributions to a Roth 401(k) are made with after-tax dollars, offering no immediate tax break. But withdrawals, including earnings, are entirely tax-free in retirement. Some plans even allow you to split contributions between the two.

However, it’s important to tailor this step to your personal situation. Not everyone can or needs to max out their 401(k). For example, if you plan to retire early before age 59 ½, maxing out your 401(k) might be problematic. Early 401(k) withdrawals typically come with a 10 percent penalty, making it difficult and costly to access funds.

Instead, you might consider a hybrid approach, splitting contributions between your 401(k) and a taxable brokerage account. Taxable accounts don’t have withdrawal restrictions or penalties, though you will owe taxes on capital gains. 

Still, the long-term capital gains tax rates are 0 percent, 15 percent, or 20 percent, depending on your income level — often much lower than the ordinary income tax rate you’d pay when taking money out of a traditional 401(k). So, adopting a buy-and-hold strategy in a taxable account can benefit your tax bill if you need to access money before retirement. 

If you’re planning to retire after age 60, a taxable account might not be necessary. But if retiring early is your goal, having a taxable account can provide the flexibility you need.

Step 7: Invest for your child’s college education

If you have children and plan to help with their college costs, now is the time to start saving.

You might wonder why this step is so far down the list. Most financial experts agree that prioritizing your retirement fund is more important than your child’s college education. If you neglect your retirement savings, you risk running out of money later in life, which could burden your children. 

Remember: Scholarships, grants, work-study programs and even student loans can help fund your child’s education, but there’s no financial aid for an underfunded retirement.

To save for your child’s education, consider these options:

• 529 plans: These accounts grow tax-free and can be used for qualified expenses like tuition, books and housing. Many states also offer tax breaks for contributing to a 529 plan.
• UGMA/UTMA accounts: Custodial accounts allow you to save on behalf of your child, but they don’t have the same tax advantages as a 529 plan. And once the child reaches the age of maturity (18 or 21, depending on the state), they receive full ownership of the funds. 
• Custodial Roth IRA: If your child has earned income, a custodial Roth IRA allows for tax-free growth and withdrawals in retirement.

If you don’t have children, use this step to invest for other long-term goals that matter to you, such as starting a business, maxing out a health savings account, traveling the world or investing in real estate.

Step 8: Pay off low-interest debt

At this stage, it’s time to tackle low-interest debt, such as student loans or a mortgage.

You should always pay at least the minimum on these debts to avoid penalties, but now is the time to funnel extra money toward the balances. While low-interest debt isn’t as financially draining as its high-interest counterpart, paying it off early helps increase your net worth and frees up cash for other goals.

For younger investors, paying off low-interest student loans as quickly as possible could mean sacrificing years of compound returns you could earn by investing in low-cost index funds or maximizing your employer’s 401(k) match.

You should also consider whether it makes sense to pay off your mortgage early. If you secured a mortgage during a period of historically low interest rates, sticking to your regular payment schedule may work in your favor. Over time, inflation reduces the real value of your debt, making what you owe effectively “cheaper” in today’s dollars. 

Bottom line

Building wealth isn’t about doing everything at once — it’s about knowing what to prioritize and when. By following an investing order of operations, you can eliminate debt, save for emergencies and invest so you’re always progressing forward. And if you need more nuanced guidance, you can always consult with a financial advisor, who can customize a plan based on your individual goals and time horizon.