Chasing Financial Waterfalls: where to put your first $1

In this video, Ben explains the "Financial Waterfall," a strategic approach to prioritizing where to allocate your first dollar of investment.

Here’s how it works:

• Maximize Employer Match: The first step is to contribute to your 401(k) up to the employer match. This is essential as it provides a 100% return on investment through the employer's contribution, making it the most valuable initial investment.

• Pay Off High-Interest Debt: After maximizing the employer match, focus on paying off high-interest debt, such as credit card debt, which often carries interest rates of 20-25%. This strategy is crucial as the interest saved outweighs typical returns from other investments.

• Fund an HSA: Once high-interest debts are paid, consider contributing to a Health Savings Account (HSA). The HSA is unique for its triple tax-free benefits, making it a highly advantageous investment vehicle.

• Further Retirement Contributions: After the HSA, return to funding your retirement accounts, including your 401(k), 403(b), Roth IRA, or Roth 401(k). These accounts provide tax advantages that are beneficial for long-term savings.

• Other Investments: Once the above priorities are addressed, you can consider opening a brokerage account or investing in real estate and other outside investments to diversify your portfolio.

By following this financial waterfall approach, especially for young physicians or residents, you can strategically maximize returns, minimize high-interest debt, and ensure a well-rounded investment strategy.