Where Should My Next Dollar Go?
At almost 7 and 10 years old, my kids are finally starting to grasp the concept of earning money via chores (and what chores pay the most). I’m happy to report that over the summer, the piggy banks have started to fill up. Which naturally lends itself to one of the most common questions I hear, “Mooooom, what should I do with my money?” More often than not, it’s immediately followed by, “Can I buy something?” (usually followed by enthusiastic “pleases”). While my instinct is to always encourage saving before spending, their questions got me thinking about one we hear almost every day from clients.
We even found an opportunity for allowance earning while they were visiting the office this summer!
Should you contribute more to your 401(k)? Build your emergency fund? Open a Roth IRA? Pay down debt? Invest in a brokerage account? The truth is, almost all of those are good options. The challenge is figuring out which one deserves priority today. The best financial decision isn’t always the investment with the highest expected return—it’s often the one that strengthens your overall financial plan the most.
Over the years, we’ve found that one of the simplest ways to prioritize savings is to follow a decision framework. Rather than asking which investment is “best,” it starts by asking whether your financial foundation is secure before moving on to retirement savings, specific goals, and long-term wealth-building strategies.
Start with the Basics
Before worrying about investment returns, make sure your financial foundation is solid. Building wealth isn’t just about earning higher returns—it’s about protecting yourself from financial setbacks.
- Do you have a solid emergency fund? Your emergency fund doesn’t necessarily have to sit in a traditional savings account. High-yield savings accounts, money market funds, Treasury bills, and other highly liquid, low-risk investments may all be appropriate depending on your situation. The important thing is that the money is readily available when you need it—not invested in assets that could decline significantly during a market downturn.
- Are there high interest debts that can get paid down? High interest debt – particularly credit card or personal loans with double digit interest rates –is often one of the highest “guaranteed returns” available because every dollar paid toward that debt effectively earns a return equal to the interest rate avoided. Depending on current interest rates and individual circumstances, even debt in the 5%–7% range may deserve additional attention.
- Do you have appropriate insurance coverage? This is a key one particularly for those younger and accumulating assets. We addressed this topic on our webinar we hosted in June. If you have not watched it yet, check it out here.
Don’t Leave Free Money Behind
An employer match is one of the few guaranteed returns available in investing and is often one of the best places for your next dollar. If your employer matches 100% of the first 4% you contribute, that’s an immediate 100% return before your investments have even had an opportunity to grow.
This typically applies to those individuals in the accumulations phase. If your employer offers a retirement plan match, make sure you’re taking advantage of it. This doesn’t just stop at retirement plans though – HSAs, FSAs, charitable contributions in some cases, and Student Loan repayment matches are also options.
Give Every Dollar a Job
This is where financial planning becomes personal and goals oriented. Not every dollar is meant for retirement. Some dollars are meant for buying a home or renovating a home. Others are for college, healthcare expenses, vacations, gifts (one of my favorite ways to save for Christmas shopping), or simply maintaining flexibility for opportunities you can’t predict today.
Before choosing an account or investment, ask yourself: What is this money supposed to accomplish?
This is one of the key questions we ask when we are putting together financial plans. We are taught to save, but sometimes we forget the savings is actually for something. Defining that “something” give your savings direction and makes it much more satisfying when you hit your goal target.
The account you choose matters almost as much as the investments inside it. Understanding whether your next dollar belongs in a pre-tax retirement account, a Roth account, an HSA, a taxable brokerage account, or a 529 plan can meaningfully improve your long-term after-tax results.
One the more important questions to ask yourself when determining where the next dollar will go is, when will you need this money?
Money needed within the next one to two years generally shouldn’t be invested the same way as money that won’t be touched for decades. This doesn’t mean the short-term money can’t be invested, it is just invested in a way that still provides liquidity and in assets that are less volatile. Longer time horizons often allow for more growth-oriented investments, while shorter time horizons typically call for greater stability and liquidity.
Time horizon is only one part of the equation. Your willingness and ability to tolerate market volatility should also influence how those dollars are invested.
The Bottom Line
One of the biggest misconceptions in personal finance is that there’s one perfect answer for every extra dollar.
In reality, the answer is often “a little bit of several things.”
Maybe today’s extra savings goes toward:
- Building your emergency fund
- Receiving your full employer match
- Adding to a taxable investment account
- Saving for next year’s family vacation
- Saving for college or education expenses
Every dollar represents an opportunity. The goal isn’t simply to earn the highest return—it’s to put each dollar where it creates the greatest long-term value for your life and your financial plan.
When your savings align with your goals, financial decisions become clearer, progress becomes more measurable, and you’re far more likely to stay committed through changing markets and changing life circumstances.
That’s why one of the most valuable questions you can ask isn’t, “What’s the best investment?”
It’s simply: “What job do I need this dollar to do?”
