So the first step in how I allocate money is what I'll call operating cash, which involves making sure you have one to two months of your regular expenses sitting in cash right in your checking account. But this is not an emergency fund. This is not a giant amount of money to solve all these problems.

It's your cash flow buffer for each month to smooth over the gap between the fact that sometimes you have bills that are due before your income hits and you want to make sure you're not having to go borrow money, transfer money when that happens. It also means because it's one to two months that there is a small buffer for some urgent thing like a high health insurance deductible, a sudden car repair.

You want to be able to cover those things without having to dip into your savings. So this is your pay your bills. Don't get caught off guard fund. It's simple. It's boring, but it's probably the most practical and essential piece of your framework for how you allocate your money.