The Best Investing Order of Operations for FIRE (2025)

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2:34Mindy Jensen:When it comes to investing your money, there are a lot of opinions on the best way to do it, especially if you're hoping to achieve financial independence and retire early. So today, Scott and I will help you take the guesswork out of how and when you should be investing your money.

2:56Mindy Jensen:Hello, hello, hello, and welcome to the BiggerPockets Money Podcast. My name is Mindy Jensen, and with me as always is my investing in the right order co-host, Scott Trench. Thanks, Mindy. In today's episode, we're going to take some steps to teach you what the right steps are in terms of what you should do with your money. Today's episode is an attempt to answer the question, what should I do with my money as I accumulate it? And there are two orders of operations we're going to present to you here today. One is going to be for a traditional early retiree or traditional retiree, someone who's going to go down the ladder of these tax-advantaged accounts in the order that we think is best in terms of maximizing the advantages that these accounts offer for the typical listener of BiggerPocketsMoney.

3:38The second order of operations we're going to discuss is one that's geared towards somebody who is thinking about investing in real estate or starting a business. Somebody who needs after-tax cash and liquidity because they've got better alternatives than the very powerful benefits offered by these tax-advantaged accounts. With that, let's get to it. The first order of operations for FIRE, and the first step here is to build a$1 ,000 emergency fund. The second is to attack bad debt, which we define as debt with an interest rate of 8 % to 10 % or higher. The third step is to take the 401k match, the free money offered by your employer.

4:14The fourth is to take advantage of an employee stock purchase plan, purchasing the stock at your company at a major discount. The fifth step is to fully fund your emergency fund, which we're defining as a$10 ,000 minimum or three to six months of spending, whichever you're more comfortable with. The sixth step is going to be the HSA, funding the HSA, which we believe is the ultimate early retirement account because money goes in tax-free, grows tax-free, and it can be spent tax-free, unqualified medical expenses. The seventh step is going to be to fully fund the 401k. Eighth step is going to be to fully fund the Roth IRA.

4:50Some people will flip those. We're fine with that. If you want to flip those, that's the order that we're going with as the default for most people. The ninth step is going to be to fund the 529 plan. The 10th step is to fund your taxable brokerage accounts. These are the after-tax brokerage accounts where you can invest in stocks, bonds, and all the other classic investments once you have maxed out all the opportunities that you want to in these tax-advantaged accounts I just discussed. And then the 11th last and optional step is to pay off low interest rate debt, which may include your home mortgage.

5:21This is a very popular step among people who actually become financially independent, but it is by no means required. Many people choose to opt out of it. Okay, the second order of operations is going to be very similar to the first one through the first five steps. We still recommend that you build out a$1 ,000 emergency fund. We still recommend that you pay off high interest rate, bad debt as step number two. We always would take free money before attempting to make even more in real estate or business by taking that employer match. I continue to believe that the employee stock purchase plan, if you have one, if you have the ability to buy stock at a significant discount through an employer, trumps most different investments you can make even in business and real estate.

6:04And last, fully funding an emergency fund is critical. You may even want to increase the amount you put in to an emergency fund if you're going into real estate or business for yourself. But after that, we are going to knowingly forego maxing out the 401k, the Roth, the HSA, our 529 plans and other investments because we're going to amass liquidity for that down payment or to fund the business bank account for our business. After that, once the business is off and running or once we've purchased all the real estate that we want, we can resume maxing out the investment accounts for the classic approach in FIRE, although you may not be able to do that for at least several years on your journey.

6:46Okay, how'd I do there, Mindy?

6:47Mindy Jensen:I thought that was great, Scott. I would like to dive a little bit deeper into each one of these to explain why we feel this is the correct order of operations. Let's go back up to the one for FIRE, for early retirement. Your first step was to build out a$1 ,000 emergency fund. Why? This is a buffer against disaster, right? And there's nothing new with this. This has been around for a long time. This is baby step number one if you go to Dave Ramsey. Almost anybody that talks about money will discuss this as the very first step, and for good reason. If you don't have$1 ,000 or something, you can pick$2 ,000, you can pick$500, some buffer between you and the world, every day is an emergency.

7:27and any problem that strikes later in life or later in your financial journey, at least you won't even think about as an issue, that can just totally derail what's going on here. And we need to have this insulation from the daily challenges that we all face in life, like a windshield replacement or a flat tire, whatever that is. Mindy, what do you think about the second step here?

7:47Mindy Jensen:The second step, paying off your bad debt. I totally agree with this, although I can see where some people would say, no, I don't want to do that. Episode 35 with Craig Curlop. showed how he used real estate to fund the payoff of his debt down the road, and he didn't start here. But I think for most people, paying off that high interest rate debt, 8 % to 10 % or more is going to give you the best bang for your buck. It's kind of like a guaranteed return. The amount that you're paying in interest is a guaranteed return for how much when you pay it off. Absolutely. Yeah. And I will also say that bad debt, and typically in a lot of these situations, is something that people are not deducting.

8:30So it's even worse than that, because if you were to earn an 8 % to 10 % interest rate return on some sort of investment, you'd pay tax on that kind of gain. This is an 8 % to 10 % after-tax guaranteed return. If you've got debt of this type, there's really nothing in life that will beat it. It's an emergency. It's not so bad at an emergency that we want to forego our$1 ,000 buffer against the world. But it's the whole reason that I'd want to build out the$10 ,000 emergency fund in step five here. It would be to avoid bad debt of this type.

9:02Mindy Jensen:Exactly. That's why we've got the$1 ,000 initial and then payoff debt is number two. The third one, Scott, is your 401k match. Talk about that. It's free money. If I'm able to contribute to a 401k, you know, three to 5 % of my salary, I'd say I make 100 grand, and I'm able to contribute$5 ,000 to my 401k, my employer will match 5 ,000 or even if it's a 50 % match at 2 ,500, I mean, that's an incredible return. That year one return is going to trump almost anything else that you could possibly do with your money in that first year. I think you gotta take that gift to make sure that you are taking advantage of that benefit if your employer offers it.

9:38It's usually also, again, not super small, three to 5 % is not meaningless, but most people should be able to take advantage of an opportunity like that pretty easily without noticing a big problem in their lives.

9:49Mindy Jensen:I wanna point out that every employer's 401k matching is different. So you definitely wanna talk to your HR department just to make sure that you're not front-loading it and then not getting all of the match. I've seen people where they put$10 ,000 into their 401k in January to get the growth throughout the whole year, only to discover that their employer will only match 3 % per paycheck over the course of the entire year. So definitely talk to HR about how your plan works. All right. We're going to match you with the next steps on your journey to financial independence right after this.

10:27Mindy Jensen:Welcome back to the show. All right, Scott. Next up is the employee stock purchase plan. I have never worked at a company that gave me an employee stock purchase plan. So this is not something I'm super familiar with. Why do you like it so much that you put it here on step number four? This will apply to probably a minority of people watching this, but you have to put it into the order of operations because if you do have access to one of these things, you've got to take advantage of it. At my first employer, we were given the option to participate in the employee stock purchase plan where we could purchase shares of the company.

11:03It was a publicly traded company at a 15 % discount once per quarter. And you could then immediately sell the shares for a 15 % gain. And this was incredible. I think the limit was something like$30 ,000 per year. And so this is another three, four thousand bucks. And if we're going to say, take your 401k match, why would you not also take the three or$4 ,000 in free money, basically, that you can get from just paying an employee stock purchase plan? I did not choose to keep this stock. So I just sold it. And yes, I had a capital gain that I paid taxes on. It's amazing how many times people push back on this.

11:39It's like, yeah, you also have to pay taxes on the raise that you get. You can turn on your raise and not pay taxes on that. You can give me the extra money. I'll pay taxes on it. But yeah, so you take the 15 % or whatever this discount is and you resell it. It's free money. It's almost as good. It's not quite as good as a 401k match. And it comes before, I think, any other investment protocol that I'm doing because I can then take the excess dollars that I just generated with this ESOP and use that to help fund all these other opportunities that we're going to discuss.

12:07Mindy Jensen:ESOP being the employee stock purchase plan for those of us who don't know. That's right. The ESOP. Yes. Okay, number five is my favorite. Fully fund your emergency fund. $10 ,000 minimum or three to six months of spending. I think that this is so important because it's an emergency fund. This is for things you are not planning for. You run over a piece of metal in the road and you now have to pay for four new tires and some damage underneath your car. You slide into a snowbank like I did and break your ball joint and you have to now pay to get that fixed because I don't know what that does, but it makes the car go and it's really important apparently.

12:47Mindy Jensen:What if you lose your job? What if you get sick or your spouse gets sick and you have to take time off work to heal? There's no accounting for what's going to happen. I don't have a crystal ball. If anybody has a crystal ball, let us know. Mindy at biggerpocketsmoney.com. Scott at biggerpocketsmoney.com. See that? we have new email addresses. We can't see the future. So this is covering the future. This helps prevent you from swiping a credit card in the heat of the moment. There are multiple major benefits that come from having a fully funded emergency fund. And it's not just this cash sitting idle necessarily.

13:24It is your buffer against the world. It is the ability to leave a toxic work environment or take that risk on that next job opportunity that comes up. All of those things will feel more palatable to most people watching this as that cash position grows. You don't have to take this to extremes and get one, two, three, five years of cash cushion. Although a good chunk of the people that we talk to who actually retire early, for example, will have a one year plus cash position in there. Not everyone, but a good chunk of them do. But as you build up that cash position, you will see those options. They will feel more like opportunities to you instead of risks or threats.

14:03Furthermore, a large cash position allows you to do things like perhaps what I do with insurance, where I'm able to say, I'm going to take a high deductible plan. My deductible in my home policy is something like 20 or 30 grand. That keeps my premium super low. It sends a clear message to my insurance provider. Hey, I'm not going to be calling you unless the house burns down or I got a big problem with it because I'm going to be covering all those other things. I have such a high deductible. That's powerful. The savings that can accrue to you by having a large cash position are absolutely part to the returns of a flexible position like this.

14:32So definitely encourage that before we move on to something like the next retirement account here, the superpower plan, the HSA. Mindy, why do you like this one so much?

14:41Mindy Jensen:I love the HSA for the reason everybody else loves the HSA. It's triple tax advantage. And what that means is I'm not paying taxes on the money that goes into the account. It grows tax-free. And when I withdraw it, I am also not paying taxes so long as I am withdrawing it for qualified medical expenses. These are things like doctor co-pays. These are things like your prescription co-pays, random things like contact lenses and band-aids. There's a huge list of items that are coverable. But what I also like about this is I can invest this money as I see fit. I opened up an account at Fidelity and I put all of my HSA money in there.

15:24Mindy Jensen:I invested in whatever stocks, index funds, whatever I want. And so that allows me to kind of supercharge this money's growth. Then I just cashflow all of my medical expenses right now. Oh, braces. If you have two teenagers who both went through two rounds of braces, that's not cheap. I think I bought my orthodontist a new car or boat or house or all three. So those are all qualified expenses. You just go to your HSA and you say, here's my receipt. I would like this much money, please. And they give it to you and you pay no taxes on it. So you're reducing your taxable income. You're growing tax free, investing wherever you want within reason and then paying no taxes when you pull it out.

16:05I completely agree. It's a superpower account. You got to fund this one first. A couple of other notes on this are, like Mindy said, keep all your receipts for every medical expense. And that can include personal care items as well. So make sure you understand what that scope is, because you can reimburse yourself for expenses in 20 years, you can reimburse yourself from your HSA for expenses that you incur today. So keep all those receipts in a big folder. This is a practice that I started a couple of years ago because of Mindy's coaching. The other thing to note here is that you must have a high deductible healthcare plan in order to qualify for an HSA.

16:40These usually come with high deductibles and high out-of-pocket maximums. Not everybody has access to one of these or can access one of these, but if you can, and you believe that you have a reasonable likelihood of not hitting your high deductibles or high out-of-pocket maximums in any given year, you may want to opt for that higher deductible or higher out-of-pocket maximum plan that your employer offers or pick one on the exchange if you're able to do that because those are the plans that qualify you for an HSA. One kind of fun story on this is seven, eight years ago, BiggerPockets did not offer a HSA-compatible plan because we offered a really excellent healthcare plan that had very low out-of-pocket maximums and low deductibles.

17:23And Mindy comes up to me and says, Scott, I want an HSA compatible plan. I'm like, Mindy, if we do that, we're going to give you worse healthcare coverage. She's like, I don't care. I want an HSA compatible plan. So we have the option now where people can choose the high deductible plan, which is the worst plan, the cheaper plan for the employer, or the lower deductible and lower out of pocket maximum plan, which is not HSA compatible. So So Mindy saved the company a lot of money and gave us all more options, which I ended up choosing, of course, the HSA plan the next year as well.

17:54Mindy Jensen:I love when it looks like I'm saving the company money, but it's actually I'm just doing it for me. Yeah. So lesson learned. If your employer does not offer an HSA compatible plan, suggest that they do because it would be cheaper for them and for you if you're paying any portion of that premium. And you'll have an HSA compatible plan, which is, again, the superpower retirement account. Speaking of superpowered retirement accounts, Scott, next up is the fully funded 401k. So in 2025, the contribution limits are$23 ,500 for somebody who is under 50. If you're over 50, that goes up by an additional$7 ,500.

18:30Mindy Jensen:And if you are age 60, 61, 62 or 63 under the Secure 2.0 Act, you can contribute your catch up up to$11 ,200 over the$23 ,500. I can't wait till I turn 60. One note that I'll call out here is there's a longstanding debate about whether the 401k or the pre-tax account. So if you if you are military or, you know, public employee, you'll have different abbreviations for these. If you're a Canadian listening to this, you'll have different abbreviations for these accounts. But for the 401k, the pre-tax versus the Roth, the post-tax account, we debated going into this episode which one we should prioritize.

19:11I am a Roth guy, and I've prioritized the Roth guy despite being in a higher income tax bracket for the last several years because I like the idea of having everything grow tax-free and just knowing what my number is going to be. I'm a little wary that the tax code will change in the coming decades, and they will increase taxes on high income earners, which I expect to be even when I go to withdraw from my 401k. However, we said, what is the answer, the textbook answer for the classic retiree or the classic early retiree? And for those folks who are going through this order of operations, it is much more likely that you're going to be contributing to these accounts in your high income earning years and withdrawing in your lower income earning years.

19:59But if for some reason you think you're going to stay in higher income earning years in the future, or you're in a lower income earning tax bracket today, but are still able to max out all these accounts somehow for whatever that is going on in your situation, then you may want to flip the order here and fund the Roth instead of the 401k. But for the typical person watching this, we think that the 401k and then the Roth is the right order of operation. Do you agree with that, Mindy?

20:24Mindy Jensen:I do agree with that. I am contributing to the traditional because I'm trying to reduce my taxable income. I'm also over 50. So I have that extra 7 ,500 that I can put in there. And because of my real estate agent license and self-employment income, I have a self-directed solo 401k. So my company can match my contributions up to 25 % of my salary. So I have the ability to put in more, which just ultimately reduces my taxable income by so much that it is worth it to me for that. But Scott, this is a point that I wanna make. You are doing Roth 401k because you've thought about it, you've weighed the options and you've made this choice consciously.

21:07Mindy Jensen:I have done the same thing just with the traditional. I've weighed the choices and I wanna reduce my taxable income now. It's not like Scott's right or I'm right. I'm right for my circumstance and Scott's right for his circumstance. So we just want you to think about why you're doing it, not just, oh, well, Scott does it, so I'll do it too. It might not be your best option to do the Roth. It might not be your best option to do the traditional. You just have to do the math yourself. And I think if you're listening to this, the most common answer will likely be max out that 401k. Speaking of Roth, Scott, next up is the Roth IRA, also the backdoor or mega backdoor Roth IRA.

21:43Mindy Jensen:Why are we making this number eight? The Roth is an awesome account because it will grow, again, tax-free. And you can withdraw from it tax-free, all of your contributions tax-free, and all of the gains tax-free once you hit retirement age of 59 and a half. So it's a really powerful account. And I think that even if you're skeptical of tax brackets in the future, I think there's reason to be very hopeful that there will be no changes to the rules around the Roth IRA. and that money will truly be yours to spend without tax or penalty in future years of retirement. It's also a really great estate planning tool.