Our financial steps to freedom
Two well-known American answers exist. Neither accounts for compulsory super. Here is the order that does.
6 min read
Everything in this module is now competing for the same dollar. Emergency fund, consumer debt, investing, super. The question people actually ask is not "is this good advice", it is "what do I do first".
Two well-known American answers exist, briefly: Dave Ramsey's 7 Baby Steps[1] clear all non-mortgage debt before investing a cent, then build savings, then invest. The Money Guy Show's Financial Order of Operations[2] takes the employer match first and tolerates cheap debt for longer. Neither translates cleanly to Australia: compulsory employer superannuation means you are already investing before you decide anything, so there is no match to chase and no step one about capturing it. That changes the order enough to need our own version.
Our financial steps to freedom
This is general guidance, not advice about your situation, and the caveats after it are not decoration.
- Cover the immediate cliff edge: about $1,000 in cash. Enough that a flat tyre or a vet bill does not go on a card and undo the next step. Small on purpose, because it is a buffer, not a plan.
- Check your super is not actively broken. This is free and takes one session, and it is here rather than later because it is compounding whether you look at it or not. You are checking three things: that you have one account rather than four, that the fee is not outlandish, and that the investment option is not a cash or conservative default eating your entire thirties. How super actually works covers it.
- Clear all consumer debt. Everything that is not a home mortgage, a HECS-HELP debt, or debt for a productive business asset. Highest rate first, and treat interest-free plans as debt too, because they are. You cannot build wealth from a negative position, and a guaranteed return equal to the interest rate is better than most things you can buy.
- Build the full emergency fund: 3 to 6 months of real expenses. Real ones, including the discretionary spending, for the reasons in the emergency fund lesson.
- Invest, and make it automatic. A regular transfer into a broad, low-cost, screened fund, on payday, before the money becomes available for anything else. The amount matters less at the start than the mechanism existing.
- Then decide between extra super and investing outside it. This is the genuinely Australian fork, and it is set out below.
- Fund the named goals separately. A house deposit, a wedding, a business. A separate pot with its own name, alongside the investing rather than instead of it.
- Then optimise. Tax structure, more advanced allocation, estate planning, a larger property decision. This is where the last few percent of the outcome lives, and where almost everyone spends their attention first.
Step 6, properly: extra super or invest outside it?
Employer contributions are going in either way. The question is whether your own extra dollar should follow them in or stay out.
Inside super, a concessional contribution is taxed at 15% going in rather than at your marginal rate, and earnings are taxed at 15% rather than your marginal rate. For someone on a 30% or higher marginal rate that is a large, immediate, guaranteed advantage that no investment selection can match. Outside super, the money is worse off tax-wise and better off in the only way that sometimes matters more: you can actually reach it before 60.
The practical rule that falls out of that: if the money is for a life you want before 60, it goes outside super. If it is for after 60, extra super is very hard to beat on tax alone. Most people need both, and the mistake is not picking wrong, it is locking away money you will need at 45.
The caveats, which matter more than the list
- This is a default, not a prescription. A 45-year-old with no super, a 25-year-old with a HECS debt and no savings, and someone self-employed with variable income should not follow the same order, and the differences are not small.
- Steps overlap in real life. Almost nobody does step 3 to completion before touching step 4. Running two of them at once is fine. Running all eight at once is how nothing gets finished.
- This is general guidance, not personal financial advice. It does not know your income, your tax position, your health, your family, or your obligations. Anything that genuinely depends on those is a conversation with a licensed adviser, and where it touches a religious question, with a scholar who knows your circumstances.
Notes
- Ramsey Solutions, The 7 Baby Steps. ↩
- The Money Guy Show, Financial Order of Operations. ↩
Check yourself
3 questions on this lesson. Nothing is recorded or sent anywhere.
1Why do the well-known American orders of operations not translate cleanly to Australia?
Superannuation puts a slice of your income into a long-horizon investment automatically. That removes the match-capturing step and changes the order enough to need an Australian version.
2Which debts does step 3, clearing all consumer debt, leave in place?
Everything else is consumer debt and goes first, highest rate first, and interest-free plans count as debt too.
3What is the practical rule for step 6, extra super or investing outside it?
Inside super the tax treatment is a large, guaranteed advantage. Outside super you can reach the money before 60. Most people need both, and the mistake is locking away money you will need at 45.