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The 6 + 1 System For Financial Stability

You want to control your money, but where do you start? The 6 + 1 System provides seven easy-to-follow steps for achieving financial stability: No consumer debt, rainy-day savings and the ability to save cash for both retirement and life goals like vacations, cars and your next home.

The 6 + 1 System For Financial StabilityHow do you go from being flat broke to achieving — if not wealth — a state of financial comfort, freedom, and security?

One step at a time.

But: Do you know what your next step should be?

I estimate that about 80 percent of questions I get fall into one category: “What next?” And it makes sense. After you accomplish a financial goal or make a big life change, you often don’t know where to focus your efforts. For example:

  • You’re eligible for a 401(k) plan but still have credit card debt. Should you contribute?
  • You graduate with a ton of student loans. Do you pay them off early?
  • You’ve saved up six months’ living expenses. What now?

As I’ve been thinking a lot about my goals for this site in the upcoming year, I identified the need to start packaging my financial philosophies and advice in ways that are direct and consistent.

So I give you the 6 + 1 System.

Writing about money for nearly 10 years now, I’ve not only tested what works in my own life, but I’ve interviewed hundreds of people — including self-made millionaires, investment professionals and plenty of ‘average’ young people who are doing well financially — about the money habits that have had the greatest impact on their wealth.

Not surprisingly, well over 80 percent of the successful people I’ve interviewed keep mentioning the same simple habits. The result is the 6 + 1 System.

The 6 + 1 System can help you break a cycle of debt or, if you’re further along, the 6 + 1 System will help you prioritize your financial goals to achieve them as quickly as possible.

Enough said; here are the steps:

6 + 1 System, Step 1: Build a Buffer

1. Build a Bank Account Buffer

Whether or not you’re dealing with credit card or other personal debt, if you’re living paycheck-to-paycheck, one big bill or a week of missed work could be all that separates you from financial disaster. The very first step you need to take is to build what I call a Bank Account Buffer.

The idea of a Bank Account Buffer is simple: It’s an amount of money in your checking account that’s between $500 and $800 or two week’s pay (whichever is more). Even though you keep your Bank Account Buffer in your checking account, you need to think of that cash as untouchable. Whatever you buffer is — $500, $800, or $1,500 — that amount of money becomes your new “zero”. You should never dip below it.

Building a Bank Account Buffer will not only save you from costly overdraft fees but also begin to shift your mindset from always being broke to becoming used to having a financial cushion.

6 + 1 System, Step 2: Start saving for retirement

2. Invest a token amount for retirement

This may seem weird, but even if you’re $20,000 in credit card debt, I want you to open a retirement savings account. If you have a 401(k) or other kind of retirement account at work, that’s perfect. Otherwise you’ll need to open an IRA on your own.

Retirement is a vital but often-overlooked part of financial health. Even if you have more pressing money priorities, you want to get into the habit of saving for retirement early. Saving for retirement should be something you never have to think about, and the earlier you do it, the more your money can work for you thanks to compound interest.

If you’re paying down debt, you can start very small — even putting between 2 and 5 percent of your salary towards retirement is a good start. Once you’re out of debt, you’ll want to increase this percentage substantially.

One final note: If your employer matches contributions to your 401(k) or similar plan, try to contribute the maximum amount they will match. Failing to do so is like leaving a portion of your salary on the table.


6 + 1 System, Step 3: Pay off bad debt

3. Get rid of “bad” debt

I don’t really believe there’s such a thing as “good” debt, but some debts are definitely worse than others. Namely: Credit card debt, personal loans, and auto or student loans with an interest rate greater than 6.5 percent.

After you have a Bank Account Buffer and are contributing a small amount towards retirement saving, your priority should be to pay off bad debts as fast as possible.

If it’s important to you to save as much money as you can, pay off the debts with the highest interest rate (APR) first. Otherwise, start with the debts with the smallest balances so you can celebrate milestones sooner as you pay them off in full.

What about other student loans and other debt?

Lots of us have student loans that may not qualify as “bad” debt. If you have student loans with an interest rate over 6.5 percent, I would encourage you to pay them off in Step 3.

If, however, you have federal loans with a 5 or 6 percent interest rate, that decision is less clear. Personally, I would NOT pay extra on these student loans. I would continue saving and investing instead.

I don’t know whether I can beat a 5 or 6 percent rate of return in the stock market, but I would hope to at least match it (in the long run) with the possibility of doing even better. Also, some student loan interest is tax deductible. Finally, if you save money rather than paying off your loans early, you have cash available that provides flexibility should other opportunities arise (in investing or in life).

Ultimately, the decision is yours. If your priority is to become debt-free as soon as possible and you prefer the guaranteed return of paying down your student loans early, there’s nothing wrong with doing so.

6 + 1 System, Step 4: Save for emergencies

4. Save for emergencies and retirement

After you’ve eliminated all high-interest debt, it’s time to turn your sights on savings.

Although a Bank Account Buffer can insulate your finances from small unexpected expenses, it’s no substitute for a full emergency fund: A savings account that contains at least three months of expenses (preferably six months).

An emergency fund should be stored in an FDIC-insured high yield savings account that’s separate from your primary bank so you won’t be tempted to spend it.

At the same time as you build your emergency fund, you should be increasing your retirement savings until you’re saving as much as you comfortably can each month. Putting away 10 percent of your savings is a good start, but if you really want to build wealth, you should strive to eventually be able to save 25 percent or even a third of your income.

6 + 1 System, Step 5: Save for something you want

5. Save for something you want

As you increase your savings rate, don’t feel like it ALL has to go towards retirement. In fact, you can feel free to evenly split saving for shorter-term goals and saving for retirement.

There’s a lot of life to live between now and retirement. Whether your next goal is a wedding, a vacation, or a down payment on a home, plan ahead so you can pay for your goal with cash, not credit.

6 + 1 System, Step 6: Invest and donate

6. Invest and donate as you see fit

Have you reached the point where you:

  • have no bad debt and
  • are saving enough to cover all of your wants in the next few years?

Congrats! Feel good about yourself, because most people rarely get to this point. Now your goal should be to contribute the maximum legal amount to retirement accounts every year. This will maximize your tax savings.

With money left over, you can invest on your own in a taxable brokerage account or pay down lower-interest debts like federal student loans or your mortgage. And, of course, if you haven’t been doing so already, set aside money to give back to charity.

6 + 1 System, Step 7: Create an additional stream of income

+ 1. Create an additional stream of income

Follow the six steps above and you WILL achieve financial freedom. But depending on how much debt you have an how much you earn, it may take a long time.

If you’re serious about accelerating your wealth, the “Plus 1” step in the 6 + 1 System is the most important. The Plus 1 Step is creating a side hustle: Another source of income outside your day job.

Earning more money will always be a quicker way to your financial goals than trying to spend less.

For some, your side hustle could grow into a business that will earn you more money than you ever could as an employee. But a full-time business doesn’t have to be your goal.

Lots of millennial are getting ahead by freelancing or working second jobs. Some do it because they have to, but others do it because they know they’re knocking down financial goals in half the time.

When I was 25, I was $80,000 and had a day job that paid about $35,000 a year. At that salary I was keeping my head above water, but it was going to take 10 years or more to get out of debt. So I got side hustles. First, I started working nights and weekend at Starbucks. Later, I learned how to earn money from my hobby as a blogger. With not one but three sources of income, I got out of debt in about three years instead of 10.

Anybody can pursue a side hustle. Here are nearly three dozen ideas to get you started.


You may be familiar with Dave Ramsey’s Baby Steps, which, in part, inspired this list. His steps have helped a lot of people, but like all canned advice (including my own), they’re not going to fit everybody. In creating my own steps, I thought carefully about today’s 20- and 30-somethings who:

  • Are starting from scratch, often with modest incomes.
  • Have ever-increasing student loan debt loads.
  • Cannot rely upon social security and pensions to provide retirement income.
  • May not own a home or have kids for many years.

The 6 + 1 System is designed to create financial stability by building cash savings for emergencies, making saving for retirement a habit as soon as possible, eliminating consumer debt, and learning to save and invest for specific life goals.

The system doesn’t specifically focus on things like paying down a mortgage or saving for children’s education because those steps don’t apply to many of us (at least not yet).

Finally, you might be surprised to see the emphasis I place on retirement savings. After all, I recommend you start putting something away in a retirement account even if you have credit card debt and then contribute to a Roth IRA at the same time you save for emergencies!

What gives?

Basically, I know so many people working through retirement because they didn’t save earlier in life. And I also know that only about 10 percent of my friends are actively saving for retirement. All of this DESPITE the fact that every dollar you save in your twenties will grow exponentially thanks to compounding interest. So I think you should start saving for retirement. Start small, but start now.

Basically, we should ALWAYS be saving for retirement IN CONJUNCTION with all our other financial goals.


To me, financial stability means:

  • Not carrying consumer debt.
  • Having a back-up plan if you lose your primary source of income (at least an emergency fund and maybe a second income stream).
  • Regularly saving and investing money for the future.

I wrestled with what to call this post. In other words, what the ultimate outcome of these 6 plus 1 steps should be.

At first I was going to call them steps to financial independence, but that’s not right; financial independence means different things to different people. For many, it simply means not relying on mom and dad to pay some of your bills, so in that sense you could technically be financially independent but still have no savings and tons of debt.

In the personal finance world, financial independence (or financial freedom) has another meaning: it’s when you can live solely off the interest on your investments. In other words, you no longer have to rely on working for your income. That’s a much bigger goal.

I settled on financial stability because I think it is

  1. Something we all want
  2. A milestone that will make you significantly happier
  3. It’s achievable for most people, regardless of income

To be clear, we’re not talking about getting filthy rich here. Somebody making $10 an hour can become financially stable just as much as somebody making $100 an hour. But once you achieve financial stability, you will:

  • Worry about money less, if at all
  • Earn interest rather than pay it
  • Grow wealthier by the day, almost automatically

Finally, you’ll be richer than most people. Less than 40 percent of Americans have enough savings to cover three months’ living expenses, according to a study by Bankrate.com. When you can combine a rainy-day fund, no debt and regular retirement savings, you’ll join a rather exclusive club!

I want your feedback! Did you find the 6 + 1 System helpful? Have questions? Leave a comment or shoot me an email.

Published or updated on December 15, 2015

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.


We invite readers to respond with questions or comments. Comments may be held for moderation and will be published according to our comment policy. Comments are the opinions of their authors; they do not represent the views or opinions of Money Under 30.

  1. Jennifer Holland says:

    Hello David! I simply love this post. I have been following you and your advice for a while now. I will admit the advice is very helpful and realistic. Thank you for this site. It really helps people like me to know that I can reach my financial goals!

  2. Great list, definitely helps focus the mind on what needs to be done. Sometimes the hardest part is formulating a plan, particularly when you have a ton of debt like I do (all student loan). I have seen it happen too many times where someone is doing a great job paying down debt (but does not have a buffer), and next thing you know the hot water heater goes and they are back in debt all over again at the same level they were before.

  3. Mongo says:

    Step 4; starting an emergency savings fund and also investing in a Roth IRA.

    They can be one in the same can’t they? Not positive, but my understanding is:

    If you invest in a Roth IRA, at any time, and without penalty, you can withdraw any monies that you invested. Not the interest earned, just the contributions that you made. Pulling out any interest earned would result in penalties, etc, on that “interest earned” portion of your withdrawal.

    So a person could have their emergency account inside of a ROTH IRA. If you suffer an emergency, you can tap into those funds. If you don’t, the investment continues to grow tax free inside the Roth IRA.

    • David says:

      I think once you take a contribution out of a Roth IRA, you can’t put it back in (at least that’s what I read somewhere). So in general it’s not a good idea to withdraw money from an IRA unless that’s your last resort!

    • David Weliver says:

      Mongo and David, you’re both correct.

      I meant to include this point in the post and forgot, but the reason I recommend saving for emergencies and investing in a Roth IRA at the same time is because in a TRUE EMERGENCY, you can withdraw your PRINCIPAL from a Roth IRA penalty- and tax-free.

      As David mentions, however, you can’t put that money back in.

      So if you’re reluctant to put money in an IRA because you’re short on cash savings and are worried about early withdrawal penalties if you really need that money, this should make you feel better about putting money into a Roth IRA.

  4. David,

    Great post! I really think the last step 6.5 is the key to getting into an offensive position in personal finance. Saving and living below one’s means is simply NOT good enough anymore. Inflation is coming and the job market is going to continue to remain dicey, so we have to create ways to better insulate us from the ups and downs of day to day life. I’d love to hear more about what you do and what others are doing to bring additional revenue per month.


  5. Matt says:

    Great post! The half step at the end I where you have to get creative. I hope that an additional property can provide extra income down the road. What are other ways that you recommend?

    • I agree, when finding additional income sources, creativity and determination are required. The big three that always come up are rental properties (as you mention), websites and online stores (my route), and freelancing/consulting. That said, there are myriad other routes, too. If you’re an artist you can sell things on etsy. If you can fix bikes you can repair them or fix up old ones and flip them. I know this is perennially a popular topic, so I’ll try to drum up some content on it in the coming weeks!

      • Matt says:

        Websites and online Stores are easiest way because you can do everything from home. Do you buy and then resell items or are you selling your expertise?

  6. Marie says:

    Nice post! Not to sound too sanctimonious, but I think step 6 and step 5 should be switched, at least the donation part.

    I think if you have reached that level of financial stability, where you are thinking about vacations and other luxuries, you can also remember those who go without food, shelter, etc. (or whatever other causes you believe in).

    I think charity can become like retirement, where people say, “Oh, I don’t have enough money now. I will take care of that *someday*.” Even a small donation each month, say, $25, won’t make a huge difference for you, but can make a huge difference for whatever cause you believe in.

    • Good point, Marie. I think there is something to be said for “putting your own oxygen mask on before assisting others” (in that you might not want to donate money if you’re really just scraping by), but once you have a little cushion I would agree you don’t have to wait for someday to donate here and there.

    • Chase says:

      I personally think that donating should be done at step one. Perhaps some may have a different definition, but I consider tithing to be a donation. Biblically, we should be giving 10% of our income to the church. I think this serves two purposes for us financially (there are other non-financial purposes as well). First, when it comes out of your first 10%, it’s like taking 401k money out of your paycheck…you won’t miss it. Secondly, it’s an act of trust that God will provide for you and acknowledging the fact that money can only provide so much for you.

      My wife and I have found that we are much happier with our finances when we tithe rather than when we don’t.

      Otherwise, I do like your post and your blog (as a whole). I think it’s extremely important for us to get our financial ducks in a row early on in life and I wish more of my friends were doing it.

      • Marie says:

        I agree with you, Chase. I think it depends on the individual and their financial situation, though.

        I think it’s very admirable that you and your wife tithe, and I think it’s a laudable goal, but for some people it might be more attainable to start off slowly, as opposed to giving 10% from step 1.

        If someone does not even have a $500-800 buffer, then they might (prayerfully) decide that giving money is not the best option until they have reached one of the subsequent steps of financial stability (I like what David said about the oxygen mask).

        Or, they might decide to donate a small amount from step 1, and increase their giving as they become more financially stable.

      • Aleena says:

        Chase, I understand what you are saying, because I have friends that tithe and wouldn’t change that even if they were broke. However, I would probably not continue to read Money Under 30 if the first step was to Tithe or Donate. I don’t intend to appear selfish here, as I have causes I support and would like to support, but it just isn’t logical and it doesn’t reach out to the masses the way this list does. Of course, to each his or her own.

        By the way, David, I love this list! Thanks so much and I have printed it out (in color -big deal) to put on my wall. I have something similar from my financial advisor in pyramid form, but it’s not as fun because he isn’t under 30!!

  7. MoneyCone says:

    Love the title! That half step many ignore, yet can be a good source of extra income.

    Great post!

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