Rocks, Pebbles, and Sand

How to prioritize financial goals

Published on:
May 10, 2020
Reading Time: 4 Minutes.
Written on:

About The Author

Noam Ganel, CFA is the founder of Pen&Paper, a value-oriented, contrary-minded journal of the financial markets. Noam worked as a Vice President in Capital Markets at Silvergate (publicly traded on NYSE under SI since Nov-2019.) At SI, which he joined in 2010, Noam was responsible for advisory services to family offices,  private companies, and financial advisors.

The rocks, pebbles, and sand story asks us to reflect on what's essential in life. In the story, rocks represent our lives' core values such as relationships and moral standards. The sand represents distractions what Cal Newport describes as shallow work. Shallow work is the new show on Netflix or the mindless wandering in shopping malls. 

If you had a jar, the fable continues, and you fill it first with sand, you won't have room for the rocks. But if you prioritize by first putting the rocks in the jar, then you will have no difficulty in pouring sand afterwards. 


If you are looking for a second opinion, especially when considering big changes to your portfolio or strategy. Unbiased, professional insights can help you reexamine your assumptions and reduce emotional decisions.

Join the waitlist to learn more.


Financials life has priorities, too. While most of the content on Pen&Paper, at least as of May 2020, is about business analysis, where we look at a company's fundamentals and strive to understand whether to buy into its business model, stock investing is not a priority for most of us. 

What is a priority is to set financial goals and to plan a roadmap on how to achieve them. And the first step is getting rid of any credit card debt, funding an emergency fund, and paying off short term liabilities such as auto and school loans. 

Credit cards

First, get rid of credit card debt. It's tough to get ahead in life when you owe someone a 20% interest rate. Hardly any skilled investor, including those reputable investors that watch businesses every day of the week, compound their capital at that rate of return. 

There is a common rebuttal to the pay-off-your-credit-card debt argument, which is that having credit card debt builds your credit score. While payment history is important, it serves less than 1/3 of the total credit score. Also, there are no benefits to having several credits cards compared to just having one card [1].

In short, the proper way to use credit is to build a payment history. But (1) limit the liability to one credit company, and (2)  pay off the outstanding debt every single month. 

Emergency fund

The second priority is to set up an emergency fund. The purpose of the emergency fund is to allow you to keep your lifestyle as life happens[2].

Typically, your financial advisor will recommend that you set aside three to six months of reserves. If your household has one provider, then six months of reserves are recommended; if there is dual incomes in your home, then, perhaps, three months of reserves suffice. 

The Certified Financial Planner (CFP) board writes:

Saving is the process of putting cash aside in safe, liquid accounts, such as the emergency fund…Only after these reserves are established can you address secondary considerations for the balance of your clients have in savings - namely, keeping pace with inflation by investing.

Whether you set aside three or six months of reserves depends on how quickly you will be able to recover from the life event. It won't take long for a dentist to find employment. But it will take a long for a real estate broker to find work in a downturn. So the amount of reserves is subjective.  

 The emergency funds should be in cash or cash equivalents [3]. I  recommend that you exclude the emergency fund from your net worth. The funds are not to be used for vacation or any home upgrades. 

Pay off auto and school loans

After you paid off the credit card companies and set aside an emergency fund, your third priority is to pay off any short- to mid-term liabilities [4]. These liabilities include auto loans and education loans. 

While mortgage payments are tax-deductible, the interest payment on the school and auto loans is not deductible. There is no benefit of holding these loans - not from a tax perspective and not from a life perspective. 

From my experience, especially when markets rise, it is difficult to pay off current liabilities instead of placing the money in the stock market. I often hear that investors feel that, in effect, they have a low-interest loan where they can earn a higher return in the stock market. But when they need the money, they risk that markets could freeze. 

Save to meet  long term goals 

Equity markets, whether you buy individual stock or ETFs, serve to fund a portion of our long term goals. Those goals include retirement and income planning or buying a home. And then also, individual goals such as gifts to children. 

Again, returning to the CFP board, in their words:

Investing involves using money, or capital, to purchase an asset that offers the probability of generating an acceptable rate of return over time, providing the potential for earnings while assuming more volatility. True investments are backed by a margin of safety, often in the form of assets or owner earnings.


Businesses compete for our time, money, and attention. And it is up to set to prioritize our goals to offset these pressures. To meet our goals, we have to set a road map. And to establish a road map, we have to consider tradeoffs: how one decision compares to the other[5].

Think about that next time you see rocks on the beach.

FOOTNOTES: [1] My credit score is over 780, and I never had more than one credit card. [2] Life events include layoffs, divorce, and significant unplanned events. [3] Cash-equivalents are money market accounts or certificate of deposits. [4] Liabilities that are due within ten years. [5] Yes, a newer car would make the commute more pleasurable. But if you wish to own a home and decide on a 5-year plan how to save for the down payment, owning a new car won't get you there.
Ask Me Anything