The Anatomy of a Financial System

The financial industry does a horrible job of making things simple.

Various financial products are promoted vigorously on the street, in our mailboxes, in our inboxes, and more, making it difficult to understand what you need and what you don’t.

I’m going to show you how to create a simple financial system that will make managing your money less time-consuming and more effective.

  • Checking Account – Financial Hub
  • Savings Accounts – Emergency & Target-Specific
  • Tax-Advantaged Investing – 401K & IRA
  • Taxable Investing – Brokerage
  • My Favorite Financial Tactic – Direct Deposit

Checking Account

Your checking account is the hub of your financial system.

You do not need more than one checking account (unless you have your own and a joint with a partner).

Functions of your checking account:

  • Pay bills that require cash
  • Pay off credit cards
  • Hold a small reserve (to prevent overdrafts)

This is where the bulk of your paycheck should go.

Schedule bills to be paid, credit cards to be paid, and transfers to be made automatically so you save time on tedious tasks.

High-Yield Savings

I hold my savings at a different bank than my checking account to prevent me from impulsively transferring to my checking account to cover frivolous spending.

When you design your financial system, your savings might look like this:

  • Emergency Fund (1-6 months of expenses)
  • Vacation Fund ($50/month, for example)
  • Down Payment Fund ($100/month, for example)
  • Wedding Fund ($200/month, for example)

Beyond the emergency fund, you can create sub-savings accounts for target-specific savings goals (like I showed above).

If you’re saving for something coming up in the next 3 years or less (some even say 5 years or less), save in cash.


This is your employer-provided retirement account.

You should ALWAYS contribute enough to receive your employer match (though not all employers provide a 401k or a match). That’s free money.

Pros of 401K:

  • The employer match is free money
  • Tax-Advantaged (Roth = Taxes Now & Traditional = Taxes Later)
  • Automatic contributions from paycheck (Set it and forget it)

Cons of 401K:

  • Limited investment options
  • Cost is not always low (check your expense ratios!)
  • Penalties for early withdrawals

Overall, 401Ks are a valuable tool for retirement saving.

Contribution limits are $22,500/year or $30,000/year if you’re 50 or older.

At the minimum, you should contribute enough to receive the match.

Depending on your goals, you may want to invest in accounts with more liquidity after that (like a Roth IRA or a taxable brokerage account).


An IRA is an individual retirement account. You can open these with any brokerage, and you don’t need an employer to do so (like a 401K).

Pros of IRAs:

  • Tax-Advantaged (Roth = Taxes Now & Traditional = Taxes Later)
  • More investment options than 401K
  • Can open an IRA at any time
  • Can withdraw Roth contributions without penalty*

Cons of IRAs:

  • Small contribution limits ($6.5K/year or $7.5K if above 50)
  • Penalties for early withdrawals*
  • No employer contributions

*Can withdraw Roth contributions, but not gains. Cannot withdraw Traditional contributions or gains without penalty.


A taxable brokerage account is a regular investment account you can open at any financial institution.

Although there are no tax benefits to investing through a brokerage account, there are other benefits, namely flexibility.

This money is yours to do with what you’d like. A brokerage account is completely liquid – you can buy and sell anytime.

Tax-advantaged accounts are important, but there’s something to be said for building a portfolio that you can use immediately if needed.

Your Direct Deposit

One of my favorite financial tactics is setting up my direct deposit.

This is the most important section of today’s email.

When I get paid, here’s what happens:

  • X% to 401K
  • X% to IRA (Back-Door Roth IRA)
  • X% to High-Yield Savings
  • X% to Brokerage Account

Then, the rest goes to my checking account.

By the time my paycheck hits my bank account, I’ve already contributed to my tax-advantaged investment accounts, high-yield savings account, and brokerage account.

I never have to worry about saving or investing enough because I set it up once and moved on.

Create a simple system that works for you

I haven’t covered everything here, but these are the basics:

You don’t need more than one checking account.

You can use sub-savings accounts to create an emergency fund and target-specific savings accounts (wedding, down payment, car, vacation, etc.)

Contribute enough to your 401K to get your match.

Use IRAs for non-employer tax-advantaged investing

Use brokerage accounts to build a liquid, flexible portfolio.

Use direct deposit to automate where your money flows.

The goal is to make a plan that fits your lifestyle and goals, automate it, and leave it alone.

You don’t need to spend countless hours stressing over your finances each month. Put in the work upfront, and your life will get easier and more satisfying.