Where Should Your Next Dollar Go?

A Cash Flow Framework for High Earners

It Starts with Cash Flow

Earning more money doesn’t automatically build wealth. In fact, I’ve seen plenty of households making well into six figures who still feel like they’re living paycheck to paycheck. By itself, that isn’t necessarily a problem, as it could indicate an already efficient cash flow system. The more important piece in this picture is making sure your income is being put to use in the best, most efficient manner.

Every extra dollar you earn has a job to do, and the challenge is deciding which job comes first.

Should you max out your 401(k)? Pay off debt? Invest in a brokerage account? Build an emergency fund? Save for your next house?

The answer might be “all of the above.” But putting your dollars to work in the right order is key.

Here’s the framework I use when helping clients decide where each surplus dollar should go. Chances are, you’re already directing dollars to many of the accounts below. If so, make sure that you’re spending/saving in the optimal order, and work your way through the list until you have saved/spent/transferred every surplus dollar.

Know What You Actually Spend

Everything starts with cash flow. If you can’t live on less than you make, nothing else matters. Before you even consider spending, saving, or transferring a single dollar, you must know, not estimate, what your total inflows and outflows are each month. Income is relatively straightforward, at least for W-2 wage earners: add up the direct payroll deposits that you receive in a month and add in any other source of recurring income.

Expenses can be a bit more complex, but manageable. If you have multiple credit cards, pull statements for each card for the previous 4-6 months. Add together the average monthly statement balance for each card to determine your total monthly credit card bill. Then, navigate to your checking account and examine all debit entries for the same trailing 4-6 months. This should be limited to items such as utilities, mortgages, and other relatively fixed expenses.

Take the average total monthly debit outflows, combined with your credit card totals, and subtract this from your average monthly inflow. The remainder is your monthly surplus. If you have a shortfall, it’s time to reconsider your overall spending, as you can’t optimize money that you don’t have.

Capture the Employer 401(k) match

Priority #1 is easy, assuming you have a job with a dedicated retirement savings plan with an employer match. Contribute to your 401(k), but only up to the employer match (we’ll come back to this later). For example, if your employer matches 100% of the first 3% in contributions, contribute 3% of your salary to your 401(k). Or, if your employer contributes 3% by matching 50% of the first 6% of employee contributions, contribute 6% to receive the full match. An employer match is free money, which you shouldn’t be in the business of refusing.

Whether you choose Traditional or Roth contributions depends on your tax situation, but regardless of which option you select, capturing the full employer match should be your first priority.

Eliminate High-Interest Debt

With your next dollar of surplus income, aim to eliminate any high-interest debt. For this discussion, I would consider any non-mortgage debt above 6% to be high-interest. Attack this debt aggressively until it’s gone.

Pay off the highest interest rate debt first, then roll that payment to the next highest debt once the first is eliminated. Continue doing so until your debt is extinguished. Remember, every dollar paid toward a 6% debt is the equivalent of paying yourself that same interest rate, while also increasing your margin of safety by decreasing your monthly fixed expenses.

Build Your Emergency Reserve

This one is boring but important: top up your emergency fund. There are many rules of thumb that are utilized to determine the “correct” amount for an emergency fund, but the following is what I personally subscribe to:

• If you are a dual-income household, i.e., both spouses work: target three months’ regular monthly expenses for your emergency reserve balance.
• If you are a single-income household, or one spouse is the primary breadwinner supporting a family, aim for six months of expenses saved.
• For those that are self-employed or have extremely variable income, 8-12 months is your reserve target.

These emergency funds should be held in a high yield savings account or money market fund, as the goal is availability and stability.

Max Out Your HSA

Next, if you are in a high-deductible healthcare plan, enroll in and maximize contributions to a Health Savings Account (HSA). For individual coverage plans, the annual HSA limit is $4,400 for 2026 and $8,750 for family coverage. This is one of the most tax-advantaged accounts available, in that you receive the tax-free growth similar to a Roth account AND a tax deduction for every dollar contributed up to the annual limit. If the funds are used to pay for or reimburse medical expenses, the withdrawal is also tax-free.

Pro-tip: use other sources of income for healthcare expenses if you can, save your medical expense receipts, and continue to let the HSA dollars compound tax-free as long as possible. Eventually, you can either reimburse yourself for those expenses (with receipts) or wait until retirement to use the HSA dollars for medical expenses.

Fund a Roth IRA

All right, now here’s where things start to get more fun (and strategic). If you’re eligible, contribute the maximum to a Roth IRA outside of your workplace plan. A Roth account is an invaluable retirement planning tool, as it allows for decades of tax-free growth, in addition to some withdrawal flexibility.

Who is eligible? Current IRS regulations allow single filers with annual modified adjusted gross income (MAGI) up to $153,000, or those married filing jointly with up to $242,000 in MAGI to contribute to a Roth IRA. Those with incomes above this amount are quickly phased out or prevented entirely from contributing to a Roth IRA. If you’re above the limit, not to worry, there are plenty of other investment vehicles available to you, as outlined below.

Increase 401(k) Contributions

If you’ve reached this point in the cash flow order of operations, that means you’re doing pretty well for yourself. Not only do you earn a high income, but you’ve saved and/or directed those dollars in an efficient manner. Now, with your excess cash flow you can work toward reaching the IRS maximum for employee contributions to your 401(k) or other workplace retirement plan. In 2026, the limit for 401(k) employee payroll deferrals is $24,500.

Your goal at this point is to hit this maximum each and every year. Since many employers only match your actual contributions, it’s important that you do not max out this account until December, otherwise you could miss out on part of the employer match. For example, if you front-load your 401(k) contributions, hit the $24,500 limit in September and then stop contributing, you get zero match for October, November, and December.

If you spread out your contributions evenly throughout the year to hit the $24,500 limit in December, you still contribute the IRS maximum while also ensuring you get an employer match for most, if not all paychecks. Some employers offer a “true-up” provision that fixes this at year-end, but many don’t.

Save for Short-Term Goals

Okay, so you’ve obtained the employer match, eliminated all debt, filled your emergency reserve, maxed your HSA, contributed to a Roth IRA if eligible, and maxed out your retirement contributions, now what?

Before you set your sights on adding to a brokerage account, here’s where you can identify specific, short-term goals that you want to save towards. Think of items or events that will occur within the next 12-24 months such as replacement vehicles, weddings, vacations, or a down payment on a new home. These short-term savings should be held in the same or similar way as your emergency funds: highly liquid and very safe, such as in a high yield savings account or short-term money market fund.

Build a Taxable Investment Account

For many high earners, reaching this point in their earnings and cash flow journey is incredibly rewarding. With your short-term and emergency cash needs safely funded, your retirement and tax-advantaged accounts fully maximized, the next account to fund is your taxable brokerage account.

Unlike retirement accounts, contributions aren’t tax-deductible and the growth isn’t tax-free. However, taxable brokerage accounts offer tremendous flexibility in that there is no limit to how much can be contributed to this account, no age restrictions on when the funds can be withdrawn, and the account can often be used as collateral for a securities-backed line of credit, useful when bridge financing is needed.

Speaking of bridges, taxable brokerage accounts are often utilized as an effective way to bridge the years between an early retirement and age 59 ½, the age at which retirement accounts can be withdrawn from without penalty. Think of taxable brokerage accounts as the ultimate flexibility account. 

Put the System on Autopilot

The final step in optimizing your cash flow is automation. Now that you know precisely what you earn and spend each month, where and in what order surplus dollars work for you, automate as much as feasible. What does this mean? You probably already have recurring fixed expenses like mortgage/rent, utilities, and insurance set to automatically debit your checking account each month. Now, establish monthly transfers to automate the rest of your cash flow that is spoken for: debt payments, recurring emergency and short-term fund contributions, as well as HSA, Roth IRA, and brokerage account transfers.

If you want to take things a step further, combine your total fixed expenses (excluding credit card spend) with the savings and transfers above, and subtract this amount from your monthly take-home pay. The remaining amount is your monthly available discretionary spend and can be useful as a “target” for your total monthly credit card spending.

For example, if your take-home pay is $10,000 per month and your fixed expenses, savings, and transfers equal $6,000 a month, you now know that you have $4,000 available each month for discretionary purposes and can be spent guilt free. This process is known as reverse budgeting. If you’d like to learn more about the strategy, I’ve written about it in greater detail here: https://peakam.com/reverse-budgeting/

Final Thoughts

Notice that none of these priorities are particularly complicated. The challenge isn’t knowing what to do, it’s knowing what to do next.

Every dollar can only be spent once. The households that build wealth consistently aren’t necessarily the ones who earn the most. They’re the ones who intentionally assign every surplus dollar to its highest and best use.

As your income grows, your priorities will evolve. But having a repeatable framework makes every future financial decision easier.

Advisory Services offered through Peak Asset Management, LLC, an SEC registered investment advisor. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. All strategies and services described involve risks, tax implications, and potential limitations, and may not be appropriate for every investor; clients should consider these factors carefully before making decisions. This content is developed from sources believed to be providing accurate information and may have been developed and produced by a third party to provide information on a topic that may be of interest. This third party is not affiliated with Peak Asset Management. It is not our intention to state or imply in any manner that past results are an indication of future performance. Copyright © 2026 Peak Asset Management