Financial Security Plan

This plan is for achieving financial security. You will need to customize this plan for your situation but it’s a good starting point.

Here is an outline of the plan:

Find a way to make money.
Know how much you’re making.
Make a budget.
Spend less than you earn.
Save what’s left.
Level up.

Find a way to get money

Know how much you’re making

For people receiving a salary this is easy because the checks are usually a similar amount throughout the year. For people working hourly this can vary as managers create the weekly schedule and sometimes it’s not a full week of work and sometimes there’s overtime. If you’re a freelancer, you need to estimate how may clients you’ll have and how much they’ll pay. If you’re making money with arbitrage or other deal-making, estimate how may deals you’ll have and how much you’ll profit. If you own a business monitor the financial statements closely. If your revenue is seasonal, prepare separate “know how much you’re making” sections for each of the seasons.

Make a budget

A budget is a plan about how to spend your money. Split it up into categories of essentials, comfort, and leisure. Essentials are things like housing and utilities, food, car payment, insurance, and fuel, and medical insurance. Comfort items are things like hobbies, gym membership, life insurance, bigger house or apartment, nicer car, Netflix, etc.. Leisure items include travel, movies, golf, video games, etc.

Spend less than you earn

The math here is simple. If you spend more than you earn, you’ll eventually run out of money, and after that you’ll run out of credit, and after that you’ll be bankrupt.

But what if you spend exactly what you earn every month? If you spend all the money you earn, you’ll have two kinds of problems: First, if anything goes wrong (car breaks down, get fired from work, etc.) it’s going to be trouble without money to pay for the essentials while you fix the problem. Second, you won’t be able to save money that could be used to start making income from another source.

To become wealthy, you need to spend less than you earn.

Save what’s left

If you earn $1,000 every month and you only need $750 every month for your essentials, save the other $250. Some people work a second job, side-hustle, or second business so they can increase the difference between what they earn and what they spend on essentials, or so they can pay off some debts and stop making interest payments so they can save more of their money.

Don’t ever stop saving. First, put the savings into an emergency fund (enough money to pay for a few months of essentials, or for emergency repairs). Once you have that, put the savings into a retirement fund or into a future investment fund. If your monthly savings amount is large enough, you could do both. The future investment fund will eventually be used to start a new business, buy real estate, invest in the stock market, or invest in private equity.

Life happens. Emergencies happen and you have to use the savings. Children are born, or you have to take care of sick family members, or there’s a layoff in your company. Whatever happens, don’t feel bad about using your savings to get through it — that’s what savings are for. Once you get through it, go back to step one — (know how much you’re making, make a budget, spend less than you earn, and save what’s left.

Level up

Once you have a routine of making money, sticking to your budget, spending less than you earn, and saving what’s left, it’s time to level up.

Here are some ways you can level up:

Make more money. Level-up what you’re already doing, or add a new way of making money.
Track and forecast your income better, because your budget depends on it.
Put your most important monthly bills on auto-pay.
Increase how much you’re saving in each savings category (emergency fund, retirement fund, investment fund).
Add new savings categories that are linked to your budget, for example travel and entertainment.
Start investing.