MoneyMerc

[This is the second of a multi-part post.]

Last time, we talked about the need for a life plan, and how to determine what your dreams are. Since dreams have a very fuzzy connotation to me, I like think of them in a more concrete sense, that is, as specific goals. In this post, we’ll talk about creating a plan around those goals.

My examples were:

• living life without having to worry about money, and ensuring that my family can have the same bliss
• working at something I love because I want to, not because I have to
• traveling to all the places on my ‘to go’ list
• not having to worry about unforeseen circumstances that could alter this state of independence
• having the time to enrich my life and others by spending time with people who matter to me
• having hobbies that make me happy, like photography, music, and outdoor activities

Let’s break these down and organize them a bit:

Some of the items on this list require time (spending time with loved ones, hobbies), some require money (not worrying about money), and some require both (traveling, hobbies). Also there is an odd-ball one, which involves some level of protection against unforeseen circumstances (we’ll talk about that later). Presumably, we can generate money, but typically this is done at the cost of time spending doing something that isn’t otherwise on the list (the jay-oh-bee). We can’t create more time, so the only way to add more time is to stop doing those other things – namely, working. And how can we do that, if working is what generates the money needed for providing for my family, lifestyle, travels, hobbies, etc…

The first option is to get a job that you love so much, it doesn’t feel like work. Unfortunately many jobs like that don’t pay enough to meet all your other needs. Well, who said success comes without sacrifices. Maybe you can work now, and save for later. If you invest those savings, you can grow them faster, and ultimately have more to put towards your dreams. Investment and saving will be main topics of this blog, check out those post categories for articles related to them.

The second is to create automated forms of income. While personal entrepreneurship as well as automation are interests of mine, I’m still working on ideas that equal real income – so I can’t pretend to offer help here. But it can be anything from owning and renting real estate, to online ads on your website.

The last option might sound like an accounting trick, but it’s no trick. It’s used by many large corporations, especially during market downturns or recessions. Consider this equation:

Net Income = Gross Income – Expenses

Decreasing your expenses has the same exact effect as increasing your gross income – it increases your net income. A corollary of this is less expenses = more dreams. This is different than saving – in this case we are spending wisely.

Which brings us back to protection against unforeseen circumstances. Using money towards anything you didn’t plan for can quickly derail your plan. The most catastrophic of these, the ones that most affect your plan and therefore your dreams, are sickness, injury, and loss of life. Through the magical power of statistics and the law of large numbers, you can efficiently protect against these circumstances with insurance. Insurance itself has a bad connotation to many people (due to nightmare customer service experiences and shady sales tactics). But as part of a financial plan, there is no other way to make sure your plan stays on track. Some future posts in this blog will discuss the right and wrong ways to buy all different types of insurance, the pitfalls and what to look for.

The last point I want to make is about time. Time is an absolutely finite resource. Even if you can’t quit your job, it is possible to save time by automating parts of your life, especially the things you hate (you know, paying bills, managing your finances day-to-day, sorting e-mail, etc etc). As a software engineer with a degree in operations research, I LOVE automation, so look for future posts on that topic as well.

To summarize, my goals (and therefore dreams) will be made possible by the following general plan:

• Increase life income by properly saving and investing
• Increase free time through filtering information and automation
• Decrease expenses though efficient and wise spending
• Decrease risk of loss through proper and careful use of insurance

Next time, we’ll create a to-do list based on this plan.