The 7 Money Gears For Financial Freedom On 'How To Money'

Matt and Joel know that personal finance is just that: Personal. We each have our own goals, income, debts, and dependents that make our financial situations unique, so there’s no one-size-fits-all method when it comes to managing our money. But they also know that it can be difficult to figure out what our next steps should be with our money, especially when we aren’t sure how close we are to financial freedom. So on this episode of How To Money, they go over what they call the “seven money gears,” using a bike analogy to help us understand when to do what with our money. If we’re biking up a mountain, we don’t want to start with a high gear, where we have to work harder to get moving. And as we work through the gears, our momentum will do more than we realize.

The first three gears are non-negotiable, they say; while most decisions about money need to be made with the specifics of our lives in mind, the first three are simply the best basic foundation for us to build a future on. Without cycling through these gears, we aren’t set up to succeed at any of the rest. A small emergency fund of around $2500 is the first gear, in case your transmission fails or you lose a job; the second is to enroll in a company match, if you have one, to get the 50% or even 100% match on your own contributions and start investing that money. Once you’ve done that, it’s time for the third gear, tackling high-interest debt like credit cards or auto loans – anything higher than 7%. 

For Matt and Joel, gear four is about fully funding an emergency fund with 3-6 months of monthly expenses. Many would say it would be preferable to put money into investment accounts that will give you a return, rather than letting money sit in a savings account, but they don’t agree. Cash in hand allows you massive freedom if something catastrophic happens; in fact, for many people during the pandemic, a healthy emergency fund was the only thing that got them through. When you’re comfortably in gear five, that’s when it’s time to take a look at investing in tax shelter accounts like HSAs, IRAs, and 401Ks (or TSPs for military personnel). In gear six, we knock out pesky low-interest debt like student loans; and finally, in gear seven, we’re building major generational wealth, investing in real estate or brokerage accounts, and looking at luxuries like a fancy vacation. It might be hard to bike up a mountain, but if you cycle through the gears properly, you can make it to the peak. After that, gravity does the work for you – much like how compounding interest will make your money work for you. Get all this great information and more on this episode of How To Money.

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