
In my last post, I mentioned I had just started training Brazilian jiu-jitsu after over a decade off from the sport.
I am essentially starting from square one again at white belt, slowly gaining a vocabulary of moves and positions – the equivalent to a child learning their first letters in grade school, a necessary step in a progression that will see them use those letters to write words, words to write sentences, and so on.
At this stage in my training I am pretty much in awe of the higher-level belts – the way they are able to create and dynamically adapt a game plan to completely dominate their opponents, always 3 or 4 moves ahead. Using my literary example, they have moved beyond the surface level usage of words and are writing poetry.
I take comfort in the fact that all those higher-level belts started like me – an overwhelmed white belt.
Everyone has to start with the basics, master them, then focus on mastering increasingly more complicated moves as they pass through the belt ranks.
Personal finance is not so different – it requires a foundation of basics, and once you have mastered one set of skills you can move on to the next to build upon that success. We would all love to skip straight to a financial black belt, but everyone has to start at white belt and work their way up.
So I started thinking, what is a financial black belt? What are the “white belt” moves people need to begin with?
Below are financial moves with varying degrees of difficulty, organized into the 5 Brazilian jiu-jitsu belts.
White Belt
Awareness of your spending
The very first step on the path towards your financial black belt is gaining an awareness of your current spending habits. Take an honest look, perhaps by simply tracking what you spend. Apps or websites like mint.com make this very easy.
Create a budget and spend less than your paycheck
Once you are aware of your spending, the next step is to create a budget. Once you track how much you spend you may find you want or need to make changes to your spending habits.
However you want to divide your spending on different things is up to you, but I think it is important that your total spending is less than your net paycheck (the amount that gets deposited in your bank account, not your salary) so there is some money left over each month to start working towards financial goals.
Start paying down bad debt
Get in the habit of using the leftover money you have each month to chip away at any high interest rate debt (credit cards) that have been stressing you out for too long. You don’t need to knock the debt completely out at white belt, just get in the habit of making progress by paying down a little extra each month.
Establish an emergency fund
Start putting away your leftover money each month in cash to build a buffer that can help you pay for sudden expenses or loss of income without going into debt.
Read Ryan’s blog on Emergency Funds
Blue Belt
Pay off high interest rate debt
In this stage you want to pay off any bad, high-interest rate debt completely. You should be paying off any credit card debt entirely by the end of each month.
Start saving a fixed % of your paycheck up-front
Start building the habit of saving a little bit up-front each month, as long as it doesn’t cause you to run out of money at the end of the month and require using debt for expenses while you wait for your next paycheck. Company sponsored retirement programs make this easy – some even automatically enroll you and contribute on your behalf.
Have 3-6 months expenses in cash
At this stage you want to have a fully funded emergency fund, with 3-6 months of expenses in cash. How much you need depends on your personal situation. A single person with low expenses and an income that is easily replaced may only need 3 months of spending saved, while a person who is married with kids, is the sole income source for their household, and works in a highly specialized field may want to have more than 6 months of spending set aside.
Start investing and building wealth
With your financial fires (bad debt) put out and a cash buffer to smooth out any financial life may throw at you, you can start investing in a diversified stock portfolio to start building your wealth and fund your long-term goals.
A company 401k, if you have one is the first place to start. Your automatic 401k contributions will make removing a percentage of your paycheck and investing it very easy. Many will even match a percentage of your contributions to your account, which is something you want to take advantage of to the fullest extent possible.
If your employer does not offer a 401k plan, you may want to start contributing to other types of retirement accounts you can open as an individual (Traditional IRAs and Roth IRAs), or just open a regular “taxable” brokerage account.
Purple Belt
Get a financial plan
Now that you are saving and investing, it is important to think about what exactly you want to accomplish with your money. You are doing all this saving and investing for a reason – it is important to get a financial plan that spells out those goals and shows whether or not you are on track to achieve them.
Pay off student loans, car payments
At this point it is a good idea to get rid of any medium interest rate debt, whether it be student loan debt, personal loans, etc.
Max out 401k or IRAs and consider contributing extra to a taxable account
Contribute the maximum to retirement accounts ($19,000 for 401k’s or $6,000 for IRAs) and if you have any leftover, invest it in a diversified stock portfolio in a traditional taxable brokerage account.
Tilt towards size and value
Deliberately over-weight higher-risk, higher-return asset classes like small company stocks and value stocks. Research has shown that over long periods of times (2-3 decades) small-cap companies tend to outperform large-cap companies, and value stocks outperform growth stocks, though there is no guarantee that will happen in the future. As always, we must mention past performance is not an indication of future results.
Brown Belt
Constantly measure progress toward financial goals
With a financial plan in place, you’ll want to track your progress towards your financial goals as the years go on. Are you on track to achieve the goals you set out to achieve? Do you need to make any adjustments?
Save enough to make working optional
Saving enough to make working optional provides you the ultimate freedom in life. You can retire and spend your time doing the fun things you always meant to do, you can work a lower-paying job you enjoy more and find more rewarding. Of course, you can continue working if you would like, usually with a completely different attitude.
“Treat yourself” to a fun goal
If you are ahead of the game, you probably shouldn’t wait to start treating yourself. Whether it is taking that trip you always wanted or buying a sports car or jet ski, reward your discipline with something sensible.
Optimize tax location
Make sure you are holding the appropriate investments in the appropriate types off accounts. It may make sense to hold less tax-efficient investments like bonds and REITs (real estate investment trusts) in your tax-advantaged accounts and more tax-efficient investments like stocks and mutual funds in a taxable account.
Black Belt
Quit your job and do what you want
Or at least switch to a job you find more rewarding. If you love your job you don’t have to quit, but perhaps you could explore having more flexibility or reduced hours in your current role?
Achieve the financial goals in your plan
Achieve all your financial goals. When that happens, consider making new goals!
Establish legacy goals
With your financial goals achieved it is a great idea to think about the impact you can have beyond your lifetime.
Teach what you’ve learned
Most people who achieve black belt in jiu-jitsu or any other martial art end up teaching what they have learned in one form or another. Find a white belt who is struggling with the same things you did and help them out.
Final thoughts
Though we would all like to jump straight to the financial black belt, everyone needs to start with the basics and work their way towards a personal financial situation that is beyond anything they thought possible.
Upper-level belts who overcame the same challenges you are facing now, are invaluable resources on your path; get your advice from them, not other white belts. But use them only as examples and do not compare yourself to them or you may just get discouraged.
There will be bumps in the road, financial “injuries,” years you save nothing or don’t make any progress. Do not get discouraged and just keep your focus on moving towards your next financial milestone. Your only opponent is yourself, and if you put in the effort and keep moving you will inevitably improve your financial situation beyond what you ever thought was possible.

Paul R. Ruedi, CFP® is a financial advisor at Ruedi Wealth Management in Plano, Texas.
Paul has been quoted in news publications including USA Today, Forbes, The New York Times, Dallas Morning News, Inc.com, Business Insider, US News and World Report, GoBankingRates, The Street, NerdWallet, and The Penny Hoarder. He also writes articles that have been featured in CNBC, Investopedia, Yahoo Finance, Nasdaq, and MSN Money.
Previous Posts by Paul R. Ruedi, CFP®
- Don't Wait Until Retirement
- Important Retirement Planning Ages
- The 9 Biggest Threats to Your Retirement
- Should I Invest in Marijuana Stocks?
- Lost Investment Accounts
- How to Use Your 401(k)
- Why People Switch Financial Advisors
- Your First Meeting With a Financial Planner
- The Retirement Mountain
- What is Wealth Management?
- Ship of Fools
- The Richest Person in the Graveyard