Finance Fundamentals

Types of Accounts

Bank Accounts

Checking Account: This is bank account that is optimized for spending. Typically, the interest rate is very low, so you do not want to hold all of your cash here. Ideally, you keep a month or two worth of expenses in here, with the rest of your cash in your savings account. Many banks charge unnecessary fees for checking accounts, but there are plenty of great options with no monthly fees, so be sure to use one of those.

Savings Account: This is bank account that is optimized for saving and earning interest (or APY, annual percentage yield). Some savings accounts have low interest, but you should keep your money in high-yield savings accounts, or HYSA. The interest rate should be much higher than your checking account, so this is where you should hold most of your cash. Aim for a minimum of three months' expenses if you have consistent income & employment, and six months for more variable income, multiple dependents, or you prefer lower risk. Similarly to checking accounts, some savings accounts come with unnecessary fees, so be sure to choose a bank that does not charge a monthly fee. Since accounts at the same bank can transfer instantly, it can be a good idea to use the same bank for your checking and savings accounts.

Recommendation: Open a fee-free checking and high-yield savings account at one of the banks below:

• Capital One

• Discover

• SoFi

Debt

Credit Card: These are accounts that allow people to spend money with a commitment to paying it back later. It is HIGHLY recommended to pay the statement balance every monthly due date, as the interest rates (or APR, annual percentage rate) are incredibly high, often over 20%. It is worth reflecting on whether you are a credit card person or if you shouldn't take that risk. If you are super disciplined with your finances, you can be a credit card person, using these for all of your purchases to earn points, cashback, and reward, and pay off the statement balances every monthly due date. However, for most people, this is not a good idea and can become an easy way to fall into bad debt due to the high interest rates. Most people are not credit card people and should only use credit cards in emergencies. If you are paying less than the statement balance, you are accruing interest and paying that balance down needs to be your top priority.

Loan: A loan is money taken out for school, a car, a house, or any other personal reason. These interest rates can vary wildly, but are typically much lower than credit card rates for set purchases like a car or house. These typically come with consistent monthly payments over a set amount of time, but they can be paid off early in order to unnecessarily avoid accruing interest.

Recommendation: Debt should generally be avoided, though credit cards are okay to use if you set up auto-pay and pay off the statement balance each month.

Investment Accounts

401(k): This is an employee-sponsored retirement account. Annual contribution limits are much higher than other accounts, standing at $24,500 as of 2026, with an extra $8,000 allowed for those over 50, and another $11,250 for people aged 60-63. These are often through work, with many employers offering a contribution match. It is highly recommended to contribute enough to get your full match, as you instantly double your money. This account can be pre-tax (traditional) or post-tax (Roth), but are typically pre-tax, while gains within the account are tax-free. Pre-tax means you are given a tax break during the contribution year and income taxes are taken out when you withdraw from the account, while post-tax means you pay the taxes up front as part of your normal income tax and any withdrawals are tax-free.

IRA (Individual Retirement Account): This type of account is independent from an employer and can either by pre-tax or post-tax. You can easily open one at any brokerage for no cost. Just like with a 401(k), the gains within the account are tax-free. These accounts have lower annual contribution limits, standing at $7,500 as of 2026, with an extra $1,100 for people over 50.

HSA (Health Savings Account): This account is available for people enrolled in HSA-eligible health insurance plans, which are mostly high-deductible healthcare plans (HDHP). If you have one of those plans, you can contribute up to $4,400 as of 2026. This account is triple-tax advantaged as long as you use it for medical expenses, which means no tax on contributions, gains, or withdrawals. Due to this, it is often recommended to not withdraw for medical purposes and instead let the investments grow and withdraw in retirement.

Taxable Brokerage Account: This type of account is independent from an employer, but there is no contribution limit and there are no additional tax benefits. Like the IRA, you can easily open one at any brokerage for no cost.

Recommendation: Open a 401k through your work provider, HSA if your insurance allows it, and Roth IRA and taxable brokerage account through one of the brokers below:

• Fidelity

• Schwab

• Vanguard

Basic Spending Philosophy

Adjusting your expenses should not feel like a punishment. Traditional financial advice often relies on guilt, telling you to skip your daily coffee or permanently cut out all luxuries. Instead, we advocate for a value-based spending philosophy.

People always talk about spending less money so you can save more, but the better way of looking at it is:

Spend less on the things you don't care about, so you can spend more on what you do actually want.

The mistake many people make is spending on what they think they're supposed to have, simply because of what other people have or what other people tell them they should want. An example of this might be that you don't care about having a nice car, but you like nice clothes, or you want to decorate your house with fancy furniture, but perhaps don't enjoy expensive trips.

Of course, there are plenty of methods of cutting costs that you should use, like not buying name brand items or eating out less. The main idea is that saving should not always feel like purely cutting costs, as its true power is enabling you to spend your money where it brings you true happiness. Buy what you like, not what other people tell you that you're supposed to like.

This is broken down in more detail here.

Financial Order of Operations

One of the most confusing topics in personal finance is what to prioritize, so here is a step-by-step guide for just that. Follow the steps below to optimally pay down debt and invest for your future. This will not specify anything about paying your expenses, as it is assumed you are paying your essential expenses (housing, insurance, etc.) and adjusting your non-essential expenses as needed.

1. Build a starter emergency fund (1-2 months of expenses)

2. Contribute up to the maximum 401(k) match

3. Pay off high-interest debt (>8% APR)

4. Build the rest of your emergency fund (3-6 months of expenses)

5. (If available) max out your HSA

6. Pay off medium-interest debt (>4% APR)

7. Max out IRA

8. Max out 401(k)

If you're doing all this, the remaining funds can be invested in a taxable brokerage, deposited as excess savings, or used to pay off low-interest debt. There is no right answer here, as it largely depends on your personal preferences. People with high-risk profiles and longer timelines may opt to invest, while others may prefer to be completely debt-free.