finance

Disclaimer: Educational financial planning information. Not professional financial advice.

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Workflow

Follow in order. Skip pillars already covered.

1. Assess Cash Flow

1. Calculate real monthly income (take-home after taxes, insurance, retirement)
2. Track expenses for 30 days
3. Classify into Needs (50%), Wants (30%), Savings (20%)
4. Identify surplus or deficit

2. Calculate Net Worth

1. List all assets (cash, investments, property, retirement accounts)
2. List all liabilities (credit cards, loans, mortgage, student debt)
3. Net Worth = Total Assets - Total Liabilities
4. Track monthly — direction matters more than the number

3. Eliminate High-Interest Debt

1. List all debts with balance, rate, minimum payment
2. Choose avalanche (highest rate first) or snowball (smallest balance first)
3. Attack with surplus from cash flow
4. Debt is emergency if total > 6 months income OR rate > 10%

4. Build Emergency Fund

1. Phase 1: $1,000 or 1 month (starter)
2. Phase 2: 3-6 months of essential expenses (full)
3. Phase 3: 6-12 months (conservative / irregular income)
4. Keep in HYSA only. Never invest it.

5. Invest for Retirement

1. 401(k) up to employer match → free money
2. HSA (if eligible) → triple tax-advantaged
3. IRA (Roth or Traditional) → $7,000/yr ($8,000 if 50+)
4. 401(k) up to max ($23,500)
5. Taxable brokerage → no limits

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5-Pillar Framework

1. Cash Flow      → Income - Expenses = Surplus
2. Net Worth      → Assets - Liabilities = Net Worth
3. Debt           → Avalanche or Snowball
4. Emergency      → 3-6 months essential expenses in HYSA
5. Invest         → Tax-advantaged accounts first

Pillar 1: Budgeting

50/30/20 Rule

Category	%	Includes
Needs	50%	Housing, utilities, groceries, insurance, minimum debt, transport
Wants	30%	Dining, entertainment, subscriptions, travel, shopping
Savings	20%	Emergency fund, retirement, investments, extra debt

Budgeting Methods

Method	Best for
50/30/20	Beginners
Zero-based	Detail-oriented
Envelope	Overspenders
Pay-yourself-first	Savers

Pillar 2: Net Worth

• Track monthly via spreadsheet or app
• Direction > absolute number
• Milestones: $0 → 3 months expenses → 1x income → 10x income

Pillar 3: Debt Payoff

Strategy	Approach	Best for
Avalanche	Extra to highest interest rate	Mathematically optimal
Snowball	Extra to smallest balance	Psychological wins

Debt is emergency if: total > 6 months income OR interest rate > 10%

Pillar 4: Emergency Fund

Phase	Amount	When
Starter	$1,000 or 1 month	While paying off debt
Full	3-6 months essential expenses	After debt free
Conservative	6-12 months	Irregular income, self-employed

Where: High-yield savings account (HYSA). Never invested.

Pillar 5: Investing & Retirement

Account Contribution Hierarchy

1. 401(k) up to employer match → free money, do this first
2. HSA (if eligible) → triple tax-advantaged
3. IRA (Roth or Traditional) → $7,000/yr ($8,000 if 50+)
4. 401(k) up to max → $23,500/yr
5. Taxable brokerage → no limits, less tax-advantaged

2026 Contribution Limits

Account	Limit
401(k) elective deferral	$23,500 ($31,000 with catch-up 50+)
IRA	$7,000 ($8,000 catch-up 50+)
HSA (individual)	$4,300
HSA (family)	$8,550
HSA catch-up (55+)	$1,000
Mega Backdoor Roth (after-tax 401k)	$69,000 total (incl. employer)

3-Fund Portfolio

- US total market (VTI / FSKAX):    60-70%
- International (VXUS):             20-30%
- US bonds (BND / FXNAX):           10-20% (age - 20 = bond %)

Target expense ratio: 0.03-0.07%. Rebalance annually.

Savings Benchmarks (Fidelity)

Age	30	35	40	45	50	55	60	65
1x salary	2x	3x	4x	5x	6x	7x	10x

Withdrawal Rules

• 4% rule (25x annual expenses) — traditional retirement
• 3-3.5% for early retirement / longer horizons
• RMDs start at age 73 (SECURE 2.0)

Mega Backdoor Roth

1. Check if 401(k) allows after-tax contributions + in-plan Roth rollover
2. Contribute up to $69,000 - $23,500 (elective) - employer match = after-tax capacity
3. Request in-plan Roth rollover (automatic if plan supports it)
4. Growth on after-tax is taxable if not rolled over promptly

Pro-rata rule does NOT apply to 401(k) after-tax → Roth conversions

Backdoor Roth IRA

1. Contribute $7,000 to Traditional IRA (non-deductible)
2. Convert to Roth IRA
3. Pay tax only on earnings between contribution and conversion

Pro-rata rule: if you have other Traditional IRA balances, conversion is partially taxable Fix: roll Trad IRA into 401(k) before converting

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Tax Optimization

Strategy	Impact
Max HSA ($4,300 / $8,550)	Triple tax-free
Max Trad IRA deduction	Reduces AGI
Tax-loss harvesting	Offset gains + $3,000/yr income
Mega Backdoor Roth	After-tax → Roth, up to $69,000
Health insurance (self-employed)	Above-the-line deduction

2026 Standard Deduction (estimated)

• Single: ~$15,000
• Married filing jointly: ~$30,000
• Head of household: ~$22,500

Itemize only if deductions exceed standard.

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Insurance Check

Type	What to check
Health	Deductible, OOP max, HSA eligibility
Auto/Home	Liability ≥ $300K, umbrella if NW > $500K
Life	Term only (never whole/universal). 10-12x income, 20-30yr term
Disability	Own-occupation, covers 60% income

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Financial Document Retention

Document	Keep
Tax returns + supporting docs	7 years
W-2s	Until Social Security claimed
Bank/credit card statements	1 year (unless tax-related)
Investment statements	Until sold
Real estate closing	Until sold + 7 years
Estate docs (will, trust)	Permanent
Loan documents	Until paid + 7 years

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Error Handling

Scenario	Cause	Mitigation
Negative cash flow	Budget > income	Cut wants first, then needs; increase income
Emergency fund not growing	No budget surplus	Revisit 50/30/20; automate transfers on payday
Debt increasing despite payments	Interest outpaces principal	Avalanche to highest rate; consider consolidation
Investment losses panic	Market volatility	Rebalance annually, not on news; stay the course
Backdoor Roth pro-rata tax	Traditional IRA balance exists	Roll Trad IRA into 401(k) before converting
HSA ineligible	HDHP not satisfied	Verify HDHP minimums; switch plans at open enrollment
Tax bill surprise	Underwithheld	Adjust W-4; make estimated quarterly payments

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Production Checklist

• Income: calculated take-home (not gross)
• Expenses: tracked for ≥ 30 days
• 50/30/20: verified categories add up
• Net worth: baseline recorded
• Debt: all debts listed with rates and minimums
• Strategy: avalanche or snowball chosen
• Emergency fund: at least starter phase in HYSA
• Retirement: 401(k) match captured
• HSA: maxed if eligible
• IRA: funded for current year
• Asset allocation: 3-fund portfolio set
• Insurance: life, health, disability, auto/home reviewed
• Tax: withholding checked, prior year return reviewed
• Documents: retention schedule applied

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Anti-Patterns

Anti-pattern	Fix
Budgeting every dollar without buffer	Leave 5-10% buffer for variable expenses
Investing before emergency fund	3-6 months in HYSA first
Whole life insurance	Term life only. Invest the difference.
Timing the market	Time in market beats timing the market
No tax diversification	Mix of pre-tax, Roth, and taxable accounts
Credit card debt as normal	Pay in full every month
No will / estate plan	Everyone needs will + healthcare directive + POA
Chasing returns / stock picking	3-fund index portfolio, rebalance annually
Over-insuring (multiple whole life, annuities)	Term life + umbrella only
Keeping too much cash (outside emergency fund)	Invest surplus beyond 6-12 months expenses

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Sources

• IRS Publication for contribution limits 2025-2026
• Fidelity retirement savings benchmarks
• Bogleheads — 3-fund portfolio
• SECURE 2.0 Act provisions
• Kitces.com — Backdoor Roth, Mega Backdoor, tax strategies
• Morningstar — SWR research

Checklist

• Skill loads without errors in the AI agent
• YAML frontmatter is valid (description, compatibility, audience)
• Workflow section provides clear step-by-step instructions
• Error handling section covers common failure modes
• All referenced files (references/, scripts/, assets/) exist
• Skill triggers correctly for intended use cases
• No broken links or missing resources