Speaker 1: Welcome back to the Net Worth podcast. This week we are diving into the three buckets of financial freedom. Check out the full edition on our website wearenoyack.com. So today we’ve got a really fantastic deep dive. We’re going to try and tear down this wall between what feels like saving and what actually truly is saving.
Speaker 2: Right. Because most people, you know, they start trying to manage their money and they get confused. They think their car fund or wedding account is real wealth building. And that confusion is, I mean, it’s the silent killer of net worth growth.
Speaker 1: How so?
Speaker 2: Well, people aren’t necessarily failing to put money aside. They’re failing to give that money a clear purpose. And when all your cash is just sitting in one, you know, ambiguous pot, anxiety takes over and you make bad decisions.
Speaker 1: Exactly. You end up spending money that was supposed to be for a down payment on a vacation, or you’re forced to sell investments because you didn’t have a cash firewall. This three-bucket plan it provides that foundational clarity.
Speaker 2: OK, so let’s unpack that core premise because I think for a lot of people this is the most surprising part. We’re actually saying that putting money aside for a new kitchen or a planned trip is not contributing to your net worth, right?
Speaker 1: It’s responsible budgeting for sure, but it isn’t wealth creation. Why is that distinction so critical?
Speaker 2: It all comes down to the definition. Those things you mentioned, this edition calls them “future expenses with good PR.”
Speaker 1: Ah, I love that. That’s true, isn’t it?
Speaker 2: That money is guaranteed to vanish from your balance sheet. Its goal is to afford a consumption event, not to grow.
Speaker 1: Not to grow. Real saving, the kind that builds lasting net worth, is capital dedicated to one of two things: protecting your lifestyle from shocks or strategically expanding your options in the future.
Speaker 2: So if that $10,000 for the trip is gone next year, it was never real savings. It was just deferred spending.
Speaker 1: That completely reframes the whole concept. So to give our money a real job—a job of protecting us or helping us seize opportunities—this framework has three distinct categories.
Speaker 2: Yep. The system we teach at NOYACK is built on this. It’s the Emergency Fund, the Opportunity Fund, and the Freedom Fund.
Speaker 1: And the order matters.
Speaker 2: The order is everything. You fill them sequentially. You simply can’t save for opportunity or freedom until your financial defense is rock solid.
Speaker 1: Which brings us right to bucket one: the emergency fund. Your financial shock absorber.
Speaker 2: This is non-negotiable, absolutely the first and most critical step. Its job is pure protection. It’s what lets you navigate those huge unexpected financial crises without having to go into debt or selling stocks at the worst possible time.
Speaker 1: Exactly. We’re talking about covering the big four financial curveballs: job loss, a major medical issue, a home repair that comes out of nowhere, or a car emergency. The standard advice is always three to six months of essential living expenses. But our audience is pretty savvy. So how do you decide if you need three months versus six?
Speaker 2: That’s a great question. It’s all about your income stability. Three months might be fine for, say, a dual-income household—both people have stable jobs, good insurance. If one income gets hit, you have a buffer.
Speaker 1: OK, but if you’re self-employed or a freelancer, or you work in a really volatile industry, you have to aim for six months, maybe even nine. The less stable your income, the bigger your defense needs to be.
Speaker 2: That makes perfect sense. And what about calculating essential living expenses? It’s so easy for lifestyle creep to inflate that number. How do you separate what you need from what you’re just used to spending?
Speaker 1: It’s a huge psychological hurdle. We tell people to take their current spending and just be ruthless—brutally honest.
Speaker 2: Brutally honest.
Speaker 1: Essential means rent or mortgage, minimum debt payments, utilities, basic food, insurance. That’s it. Your streaming services, the daily coffee, takeout—that all goes. You’re budgeting for survival and stability, not for comfort.
Speaker 2: And the net worth implication here is just foundational.
Speaker 1: Oh, completely. This bucket is your firewall against negative compounding. Credit card debt can wipe out a year’s worth of stock market gains in a heartbeat. Having that liquid cash ready keeps your whole plan bulletproof.
Speaker 2: And crucially, where this money lives—it has to be liquid and safe. No market risk.
Speaker 1: Precisely. This is not for growth. It is cash parked in a high-yield savings account. It has to be accessible immediately and it absolutely cannot go down in value. It’s pure defense.
Speaker 2: Defense is built. Let’s talk offense. Bucket 2: the Opportunity Fund. Most financial plans stop at the emergency fund, but this is where things get really interesting.
Speaker 1: I think so because the greatest financial gains, they often come from seizing these asymmetric opportunities that pop up quickly, not just from the slow, steady drip of investing, right? This fund is specifically designed to give you the power to say yes to those rare chances instead of just watching them pass you by. It shifts your mindset from reactive defense to proactive offense.
Speaker 2: OK but let me challenge that for a second. If I have 5 to 10% of my net worth sitting there not fully invested, isn’t that just lazy capital? How do you justify missing out on long-term compounding?
Speaker 1: It’s a fair challenge and it’s not lazy capital. We call it dry powder.
Speaker 2: Dry powder, OK.
Speaker 1: The Opportunity Fund is the price you pay for optionality. Yeah, you might miss a few percentage points of routine market growth, but you gain the ability to generate a 20, 30, maybe even a 50% return in a very short time by capitalizing on some kind of market dip or unique deal.
Speaker 2: Give me a concrete example. What’s a real opportunity versus you know, just an impulse buy?
Speaker 1: High leverage means it fundamentally increases your future autonomy or your earning power. OK, so a good example would be buying a discounted rental property when the market’s down. Or making a time-sensitive angel investment in the startup you really believe in. Or even funding a course that instantly qualifies you for a huge pay bump.
Speaker 2: And a bad example?
Speaker 1: A bad example would be day trading on a hot tip or buying a luxury watch. That’s just spending. That’s not leveraging an opportunity. And the target from this edition is 5 to 10% of your net worth for this fund.
Speaker 2: Where should this money actually be stored?
Speaker 1: It needs to be accessible, but not like immediately accessible, right? The timeline here is usually weeks, maybe a few months. So you can take on a tiny bit less liquidity for a bit more yield.
Speaker 2: Like what?
Speaker 1: Short-term, high-quality bonds? Maybe a bond ETF or even just a flexible brokerage account. The main rule is it cannot be locked up in a retirement vehicle. It has to be deployable. Without this, you’re always just reacting. You’re always playing catch up. This fund lets you go from reacting to the market to strategically leveraging it.
Speaker 2: That elevates the whole conversation. OK, so let’s move to the final bucket: Bucket 3, the Freedom Fund. The ultimate goal, this is the destination.
Speaker 1: This fund is designed to buy you the ultimate asset: control over your life, your time, and your options. It moves you from being a consumer to being an owner of your own time. And the purpose isn’t just about a comfortable retirement, is it?
Speaker 2: It’s bigger than that.
Speaker 1: Much bigger. Retirement is a huge part of it, yes. But it also gives you the financial independence to handle huge life shifts. It gives you the capital to take a sabbatical for a few years or care for a family member. Or, and this is so important, to walk away from a toxic job without fear, knowing your security is guaranteed.
Speaker 2: Your fundamental security is locked in. So to make this huge goal feel less abstract, we use the famous 4% rule. Can you walk us through that calculation again for our listeners?
Speaker 1: Sure. The 4% rule is a solid guideline. First, you figure out your desired annual spending in retirement—your target lifestyle cost. Then you multiply that number by 25. That’s your target.
Speaker 2: So if I think I’ll need say $70,000 a year to live my ideal life—
Speaker 1: Then your target for the Freedom Fund is $1.75 million. And suddenly you have a clear, concrete number to aim for.
Speaker 2: And because this is for a goal that’s decades away, the investment strategy is totally different. We’re talking pure long-term growth, right?
Speaker 1: The priorities here are growth and tax optimization. So this money has to live primarily in your tax-advantaged accounts—your 401k, SEIRAs, Roth IRAs—places where it can compound for decades without being touched by annual taxes. And then beyond that, a diversified portfolio in a normal taxable brokerage account is essential.
Speaker 2: This edition even suggests looking at alternatives like REITs, not for liquidity now, but for inflation-hedged income decades down the road. But a lot of people feel like money in a 401k is locked up. You can’t touch it until you’re almost 60. How do you balance that with the goal of freedom?
Speaker 1: That’s the necessary tradeoff for tax-free compounding. It’s a horizon goal. You sacrifice current access for exponential future growth. And remember, your first two buckets—emergency and opportunity—are handling all your short and mid-term liquidity needs. This one is for the ultimate prize later in life.
Speaker 2: OK, what does this all really mean? We’ve gone from one huge, ambiguous pile of money to three distinct jobs for our money.
Speaker 1: It’s about eliminating decision fatigue. The real beauty of this system is its behavioral strength. When your money is labeled, it’s protected from being spent on the wrong thing. You stop asking yourself, “Should I use this for the trip or for retirement?”
Speaker 2: Exactly. The clarity gives the money purpose, and that purpose drives consistent, automated action.
Speaker 1: OK, for anyone listening who wants to implement this today, let’s just run through the actionable steps one more time.
Speaker 2: OK. First, just label your current accounts. Don’t even move money. Just give them a name: emergency, opportunity, freedom.
Speaker 1: Step one: label. Got it.
Speaker 2: Step 2: calculate your targets. Use the rules we talked about—the three to six month rule, the 5–10% of net worth rule, and the 25x rule. Get your specific numbers. Then automate: set up those recurring transfers, no matter how small.
Speaker 1: Consistency over intensity.
Speaker 2: And finally, and this is critical, remember the filling order: emergency first, always. Once that firewall is built, then focus on opportunity. Only when those two are healthy do you start aggressively feeding the Freedom Fund.
Speaker 1: This edition offers such a powerful conclusion, one that really moves beyond spreadsheets and into designing your life. It fundamentally shifts your whole approach. You stop thinking of savings as a sacrifice and start seeing it as a structured strategy for your future self. You go from being a passenger to being the architect of your own net worth.
Speaker 2: That’s the key takeaway right there. When your savings plan is this clear, you stop reacting. You start designing. Each bucket protects you, then elevates you, and then eventually it praises you.
Speaker 1: And I think what’s really provocative is realizing that the goal eventually stops being about having a bigger lifestyle and starts being about having more options.
Speaker 2: Remember to subscribe to Your Wealth Blueprint on our website. Read the article behind today’s conversation and get our weekly newsletter straight in your inbox.
