Money is time - it’s freedom. Freedom from a job you hate, freedom from the anger that arises when your car breaks down, or freedom from stressing about having enough food in the house this week.

Whether you like it or not, you need money, and, until that’s not true, you need to be good with it.

That’s why, over the years, I’ve developed my own personal approach to money that I coined “worst case wealthy.” It has a cool ring to it, but the outcome is actually in the name - worst case scenario, I’ll be okay.

This doesn’t mean I’ll be mega rich, it just means that, worst case scenario, Ive planned for the future and didn’t sacrifice my older self for the now.

This is the same strategy that I’ll be teaching my daughter someday, and I believe it’s easy enough for anyone to understand. Plus, it doesn’t require one to make (unreasonable) sacrifices in the present just to save money for retirement.

Cash Flow is King

Some people call this “spending less than you make.” I like to refer to it as cash flow, because that’s what it is.

When you get paid (most people have an income), you need to spend less than you get paid. The less you spend, the safer you are from financial ruin.

If you refer to money as a unit of time rather than as a unit of currency, this gets really cool.

Savings rate Months of expenses covered Formula
75% 36 (0.75 * 12) / 0.25 = 36
50% 12 (0.50 * 12) / 0.50 = 12
25% 4 (0.25 * 12) / 0.75 = 4
15% 2.12 (0.15 * 12) / 0.85 = 2.12

Most people live paycheck to paycheck. This is excusable if you’re minimum wage, but this is not excusable beyond a certain income level (this is variable based on cost of living, etc.).

Either way, you’ll need to break that cycle. Idk how, that’s up to you. Some people will need to try harder than others, or get more creative. Not all will be able to do it due to circumstances outside of their control.

Analyze your income vs. spending. Specifically, look at WHERE your money is going, and if it’s actually going towards things you need, or things you just THINK you need, or want.

This is personal. I won’t begin to judge others for what they spend their money on, just know that most people need to compromise on what to spend their money on if they want positive cash flow. This is normal, you can’t have everything.

Cash Buffer of N Months

Again, money as a unit of time here. You decide what N is.

This is what most of the personal finance world calls an “emergency fund.” I’ve found that term to be a bit too restrictive on what this money is actually used for in real life, so I went with “buffer” instead.

My buffer sits in both my primary operating account (checking account) and a HYSA (high yield savings account).

I keep roughly 1 month of spending on top of money earmarked for expenses in my checking account at all times. That means, around the beginning of each month, I’ll have 2 months of expenses in my checking account.

The rest (~11-12 months of spending) sits in a HYSA earning whatever the going interest rate is (~4% as of writing this, but it changes. Yield chasing isn’t my game).

Some people would say I’m too aggressive with my cash savings, and that 3 months is ideal. I’ve found that psychology plays a big role in personal finance, and 12 months is, for me, the number that’s required for me to feel comfortable and continue with the rest of the plan laid out below. Otherwise I deviate due to emotions - and deviating carries a massive opportunity cost.

It’s worth taking at look inward at your own tendencies to figure out what “ideal” is for you also. There is no wrong answer, except the one that keeps you up at night.

Debt is a Tool, Not a Bonus

This is where most people dig themselves in a hole. They treat debt as a bonus, and not as a tool.

Debt can be an awesome tool for building wealth, but it mostly destroys wealth in normal households.

Unless you understand how to use debt, stay away from it for things you don’t need. Don’t “treat yourself” with a credit card purchase that carries a 28% APR outstanding balance for five years because you actually couldn’t afford it.

Yes, spending money on yourself is important. No, going into eye-watering debt for a material thing whose novelty wears off within the first month is not.

I’m not going to go into the various ways debt can be used as a tool, because that’s not what this post is about. Just treat debt with the caution and consideration it deserves, and don’t go into debt if you can help it.

Saving for Retirement is Not Optional

This is the “worst case” part of “worst case wealthy.” Saving for retirement, and specifically maximizing contributions to all retirement accounts, is not optional.

Most people can’t maximize contributions to these accounts - that’s okay. Just contribute what you can without feeling too stretched. This is for YOUR future, and YOU are the only one you can count on. Take it seriously.

We each contribute to our 401k plans, backdoor Roth IRA (because if you contribute to a 401k plan you cannot also deduct contributions to a Traditional IRA, so at least growth and withdrawals will be tax free), and an HSA.

The HSA is treated as a third IRA in our household. I maintain a spreadsheet of all health expenses, pay for them out of pocket, and then contribute to an HSA annually. We can pay ourselves back for those expenses tax free whenever we want. In the meantime, it grows tax free. (details are an entire other post).

A good trick to save for retirement (because this quite literally is not optional): set up automatic paycheck contributions for a workplace sponsored plan (at the very least up to the employer match, if you have one!). This ensures you dont even touch the money, it goes into your workplace retirement plan BEFORE it goes to you.

Invest More in a Taxable Brokerage Account (or other assets)

When you’ve nailed cash flow, buffer, debt management, and retirement contributions, the logical next step is to take any excess (if you’re lucky!) and stuff it into a taxable brokerage account (or other investments/assets).

Money loses value to inflation every year, so you’ll want to do your best to maintain your purchasing power by investing in assets as aggressively as possible.

We put most of our excess money into a taxable brokerage account. This is just the same thing as the retirement account without all the tax benefits. After tax money goes in -> taxes are paid on any capital gains that come out. It’s pretty inefficient, so we treat it as a “dont touch!” type of account.

Invest Mostly in Index Funds

By this point, you’re probably wondering WHAT to invest in.

Simply contributing to these accounts doesn’t actually do anything. By default, your money is just cash when it goes into these accounts. You’ll need to choose FUNDS to invest in.

There are an insane number of funds to choose from, so I’ll make this incredibly easy.

Invest in index funds.

An index fund is simply one fund that you put your money into, and it spreads your money out over a bunch of assets to replicate an existing index (think S&P 500, NASDAQ 100, etc. - those tickers they always show on the bottom of the news, if you even watch news anymore).

Index funds are great because they offer diversification. For example, if a company goes bankrupt because the CEO was a fraudster con-man, who never paid his debts, and just funneled all the money to his personal accounts, it doesn’t affect me much, if at all.

We personally invest in Vanguard Total World Stock Market Index (VT). This is about as diversified as an index fund can get, as it holds literally every single publicly traded equity in the world, weighted by market cap (it holds more as a percentage as the value of the company increases).

A lot of financial professionals hold SPY, or QQQ.

Some people like to hold VTI/VXUS.

It’s up to you.

When you start getting caught up in trying to find the absolute PERFECT allocation for diversification, just remind yourself that there is no such thing, because we can’t predict the future. And if you’re stressing about the perfect allocation, your worst case financial scenario is probably pretty great.

Understand Tax Basics

I wasn’t going to throw this in here, but I did at the last minute because I actually consider taxes more than I initially thought I did.

Understanding at least the basics of taxes, or having a qualified CPA/EA to help you file and plan your taxes is very important.

We all need to pay taxes, but paying too much in tax is just a bad strategy. You will never get a letter from the government saying you paid too much, here’s your refund. It only happens the other way around.

Speaking of refunds - you should NEVER get one. A tax refund means you paid too much, calculated out the difference, and had to show the government proof that they owe you your money back. There’s a lot of opportunity cost in essentially giving the government a tax-free loan.

One of the most basic things you can learn to do is adjust your W4 withholdings so that you get a refund as close to $0 as possible. This is really easy, and any CPA can help you do it, or there are plenty of online calculators to help you.

There are also other tax topics to understand, like deductions, depreciation, net-loss carry forward, etc. These are all very basic, and can help you plan HOW you use your money, and where it goes first.

Combining a basic understanding of tax strategy with all of the above items will put you in a very small minority of people who will be more prepared, financially, for the future.

And, again, regardless of how you feel about capitalism, it’s here to stay for now. That means understanding at least these financial basics will go a long way in keeping you and your family financially stable.

Since most problems are actually money problems (whomever said money doesn’t make you happy is full of shit), getting at least the basics of what’s laid out in this post established will most likely lift a lot of weight off of your shoulders.