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Order of Operations

Can you work towards an early retirement and keep getting lattes from time to time?  Yes…as long as you’re paying attention to your personal finance “order of operations.”

Please no…not math!  Oh yes…math.  Get your slide rules and #2 pencils out.  And not just math, but a word problem!  Didn’t everyone hate those in school?  Yep – most avoided those like the plague.  Probably why so few people are retired early.

Ok, if you’re still reading, then maybe you’re as nerdy as I am and want to hear this math analogy tortured a little more.  So here goes…

There are three phases to creating a ripe nest egg:

  1. Saving – more income & less expenses (Addition & Subtraction)
  2. Creating Income Streams – turn your effort into assets/entities that create income (Multiplication)
  3. Compounding your efforts – Reinvest your returns into a snowball of net worth growth. (Exponential Growth)

In this early retirement word problem, the order of operations are very important.  It’s best to add, then multiply, then grow that amount exponentially.  Switch up the order of these steps, and you’ll waste effort and/or not see the best results.

Why is the order so important?

The Math Explanation

In math, the natural way of things is for exponents to come before multiplying which comes before adding.


5+4*3^2 = 5+4*9 = 5+36 = 41.

Here, the exponent (compounding) happened first, followed by some multiplying, followed by a small addition.

To retire early, you want to make the biggest number possible.  Playing with the order of operations can make a huge improvement.

For instance:

(((5+4)*3)^2) = (9*3)^2 = 27^2 = 729.

In this case, numbers were added together, then multiplied to make a larger number, then increased exponentially.  Same numbers, but the answer is 18 times higher.

The Early Retirement Case

Amassing net worth is very similar. Adding & subtracting assets from zero takes the most effort.  Letting your assets compound has an easier ring to it.  Don’t go straight to compounding (exponents) – you need to create some assets and/or income streams first.

Manipulating the pieces looks something like this:

  1. Establish savings and a net worth (Addition & Subtraction stage)
    Here’s where the effort and lifestyle change is needed.   DO THIS FIRST!  You are adding activities/hustles associated with producing dollars and subtracting uses of those funds (debt & spending).If you save $100, great…if $1,000, even better!  The goal is to get your savings rate as high as possible, while enjoying life.  Simply put: make more money, and spend less.If done efficiently, there is a quick feedback loop of successes paired with savings/investing accounts rising mainly from to deposits.  First, you’ll have a net worth.  Next, it will grow at huge percentages (even if small dollar amounts) each month/quarter due to your savings efforts.
  2. Actively grow your income streams and net worth (Multiplication & Division stage)
    Turn your energy & newly created assets into entities that produce ever-increasing income streams.  These will multiply the rewards of your effort.While harvesting returns from the prior phase, optimize your time to weed out high energy/low return hustles in order to grow new income streams.Continue adding new income streams – either with personal effort or deployment of new assets.  Learn enough to organize your investments to minimize costs & increase diversification.
  3. Let your net worth grow itself (Exponential Growth stage)
    Here you hand over the yoke, and the workhorse becomes the compounding effect of your previous work.  Continue optimizing your investments to reduce your active involvement.  Actively invest only where you enjoy it.Get better at managing your return for a given risk; check your diversification.  Maybe outsource some of your previous efforts to get leverage and another opinion on certain investments/businesses (accountants, etc).  Still be creative – there could be a way to continue your hustle right into a business that someone else runs!Once the net worth snowball is really rolling, some of those cut-out-expenses at home that helped kick-start your savings can probably be added back without hurting too much.  Keep your perspective on life, but celebrate the journey a bit.

Highest & Best Use of Effort

There are seasons of the year
…just like there are seasons of life
…just like there are seasons of net worth building.

But there is always nerdy old math to guide you.  Pay attention to the order of operations to get the most net worth per your limited capacity for effort.

Don’t pour all of your effort into minimizing fees on your investments when you’re brokerage account is worth $1,000.  At that point, effort should be directed at saving or making extra money, plain & simple.  Conversely, once you’ve saved a substantial nest egg, your time might be better spent in focusing on growing a side business rather than cutting $10 extra dollars a month from your grocery bill.

I’m not saying that cutting investment fees or grocery bills is ever bad.  Just that it might not be the highest & best use of your energies given your circumstances.

Organize your net worth quest appropriately for maximum results:

then Multiply
then Compound.



2 thoughts on “Order of Operations

  1. Loved this post!!!

    You have to love what you can do with the order of operations. Makes me think back to the acronym they taught us in school to remember the order PEMDAS (Parenthesis, Exponents, Multiplication, Division, Addition, Subtraction)

    1. Here’s to the mathletes!…”Please Excuse My Dear Aunt Sally” was our mnemonic device back in school.

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